Question

A good stockdash–based mutual fund should earn at least 55​% per year over a long period of time. Consider the case of Barney and​ Lynn, who were overheard gloating​ (for all to​ hear) about how well they had done with their mutual fund​ investment." We turned a ​$25 comma 00025,000 investment of money in 19821982 into ​$100 comma 000100,000 in 20072007​."

Answer 1

5.70%

Explanation:

Correct word "We turned a $25,000 investment of money in 1982 into $100,000 in 2007." What return (interest rate) did they really earn on their investment?

No of years(1982 to 2007) = 25 years

The average annual return is R%, so $25,000 * (1 + R)^25 = $100,000

(1 + R)^25 = $100,000 / $25,000

(1 + R)^25 = 4

We take 25th root on each side

(1 + R)^(25*1/25) =
`25√(4)`

1 + R = 1.0570

R = 1.0570 - 1

R = 0.057

R = 5.70%

So, the return (interest rate) they really earn on their investment is 5.70%.