Question

Rate of return Personal Finance Problem Rishi Singh has ​$1 comma 700 to invest. His investment counselor suggests that Rishi should buy an investment that pays no interest but will be worth ​$2 comma 300 after 9 years.

a. What average annual rate of return will Rishi earn with this​ investment?
b. Rishi is considering another​ investment, of equal​ risk, that earns an annual return of 1.42​% . Which investment should he​ make, and​ why?

Answer 1

given,

Future Value = $2,300

Present value = $1,700

time = 9 years

a) Annual rate of return

`r = ((FV)/(PV))^{(1)/(n)}-1`

`r = ((2,300)/(1,700))^{(1)/(9)}-1`

`r = 1.034-1`

r = 3.4 %

b) amount of investment to be made

`r = ((FV)/(PV))^{(1)/(n)}-1`

`0.0142 = ((2,300)/(PV))^{(1)/(9)}-1`

`1.135= ((2,300)/(PV))`

`PV= ((2,300)/(1.135))`

PV = $2,027