Question

You know that average returns on the stock market have ranged between about 8% and 12% per year in recent decades. So when someone on reddit claims that there is an investment that can give you a guaranteed average return of 10% per month , you did not believe them. What would be the annual percentage rate on the investment that the redditor describes?

Answer 1

The annual percentage rate on the investment described by the Redditor would be approximately 9.96% per year.

Step-by-step explanation:

To calculate the annual percentage rate (APR) based on a monthly rate, you can use the formula:

APR

=

(

1

+

monthly rate

)

12

−

1

APR=(1+monthly rate)

12

−1

In this case, the redditor claims a guaranteed average return of 10% per month. Convert this monthly rate to a decimal:

Monthly rate

=

10

%

100

=

0.10

Monthly rate=

100

10%

​

=0.10

Now substitute this into the formula:

APR

=

(

1

+

0.10

)

12

−

1

APR=(1+0.10)

12

−1

Calculate the result:

APR

=

(

1.10

)

12

−

1

APR=(1.10)

12

−1

APR

=

6.7275

APR=6.7275

So, the annual percentage rate (APR) for the investment described by the Redditor would be approximately

672.75

%

672.75%.

It's important to note that a guaranteed monthly return of 10% is highly unusual and should be approached with caution, as it may indicate a high level of risk or potentially fraudulent activity. Investments that promise consistent, high returns with no risk should be thoroughly investigated and may be indicative of a scam. Always exercise caution and conduct due diligence before making any investment decisions.