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

11.19%

Explanation:

We will use compound interest formula :

`A=P(1+(r)/(n))^(n(t))`

A = accumulated value = $1,700

P = principal amount = $1,00

r = rate of interest = ?

n = number of compounding = 1

t = time = 5 years

Now put the values into formula

`1700=1000(1+(r)/(1))^(1(5))`

`1700=1000(1+r)^(5)`

`(1700)/(1000)=(1+r)^5`

1.7 = (1+r)⁵

`(1.7)^{(1)/(5)} =1+r`

`(1.7)^(0.2) =1+r`

1.1119 = 1 + r

r = 1.1119 - 1

r = 0.1119

R = 0.1119 × 100

= 11.19%

Average annual return was 11.19%