Question

You bought an investment for $1000 and 5 years later sold that investment for $1700. Taking into account compounding, what was your average annual return during the investment? Round your answer to the nearest tenth of a percent and use decimals

Answer 1

11.196%

Explanation:

Given:

Buying cost of the investment or the principle amount = $1000

Time, n = 5 years

Selling cost of investment or amount received = $1700

Now,

the formula for compound interest is given as:

`\textup{Amount}=\textup{Principle}(1+r)^n`

here, r is the rate of interest

on substituting the respective values, we get

`\textup{1700}=\textup{1000}(1+r)^5`

or

(1 + r)⁵ = 1.7

or

1 + r = 1.11196

or

r = 0.11196

or

r = 0.11196 × 100% = 11.196%