Question

You have invested $3300 in the stock market and have a return of $4000 after 3 years. What annual interest rate compounded annually did your investment earn? Express your answer as a percent correct to three decimal places. 0. Bank A offers a loan rate of 7% compounded daily, whilst Bank B offers a rate of 9% compounded weekly. Which loan would be cheaper to take if the amount borrowed is $10,000 over a 5 year period?

Answer 1

The investment earned an annual interest rate of 6.528%, compounded annually, after starting with $3300 and having a return of $4000 after 3 years.

Step-by-step explanation:

Finding the Compound Annual Growth Rate (CAGR)

To calculate the annual interest rate compounded annually that an investment earned, you can use the formula for Compound Annual Growth Rate (CAGR):

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

where:
FV = Future Value of the investment ($4000),
PV = Present Value of the investment ($3300), and
n = number of years (3).

Putting these values into the formula, we get:

CAGR = ($4000 / $3300)^(1/3) - 1

CAGR = 1.212121^(1/3) - 1

CAGR = 1.06528 - 1

CAGR = 0.06528 or 6.528% when expressed as a percentage.

So, the investment earned an annual interest rate of 6.528%, compounded annually.