Question

Joanne invested $15,000 six years ago. Her arithmetic average return on this investment is 8.72 percent, and her geometric average return is 8.50 percent. What is Joanne's portfolio worth today?
A. $23,989
B.$24,472
C. $26,409
D. $26,514
E. $26,766

Answer 1

Answer:

B) $24,472

Explanation:

To calculate the present value of Joanne's investment, we need to calculate the future value of the investment 6 years ago. The formula we are going to use is:

FV = principal x (1 + r)ⁿ

• principal = 15,000
• n = 6 years
• r = geometric average return

FV = $15,000 x (1 + .085)⁶ = $15,000 x 1.085⁶ = $15,000 x 1.6315 = $24,472