Question

"Five years ago, Brian had invested $14,850 in a growth fund. The investment is worth $22,000 today. If the interest was compounded annually, what is the annual rate of return earned on the investment?

Answer 1

The annual rate return is approximately 8.2%

Step-by-step explanation:

To answer this question we need to recall the formula for the Compound Annual Growth Rate (or CAGR):

CAGR = (EV / IV)^(1/n) - 1, where:

CAGR = Compund Annual Growth Rate

EV = Investment's Ending Value

IV = Investment's Initial Value

n = number of periods (years in our case)

Now we only need to substitute the corresponding values:

CAGR = (EV / IV)^(1/n) -1 = (22 000 / 14 850)^(1/5) - 1 = 0.082

Therefore, the annual rate return is approximately 0.082 or 8.2% .