Question

suppose you buy a share of stock today for $5,000 and sell it for $8,000 at the end of five years. what interest rate will you have earned on your investment

Answer 1

To calculate the interest rate earned on the investment, we can use the formula for compound interest:

FV = PV*(1 + r)^n

Where:

FV = Future value of the investment

PV = Present value of the investment

r = Annual interest rate (in decimal form)

n = Number of compounding periods

We can rearrange this formula to solve for the interest rate, which gives us:

r = (FV/PV)^(1/n) - 1

Substituting the given values, we get:

r = ($8,000/$5,000)^(1/5) - 1

r = 0.099 - 1

r = 0.098 or 9.8%

Therefore, the interest rate earned on the investment is 9.8%.