Question

Finding the annual rate of return on an investment.

What annual rate of return is earned on a $1,000 investment growing to $1,650 in five years?

a) 6.50%
b) 1.65%
c) 9.53%
d) 10.53%

Answer 1

The annual rate of return on the $1,000 investment that grows to $1,650 in five years is found to be approximately 10.53% using the formula for compound interest, which means the correct answer is d) 10.53%.

Step-by-step explanation:

The student has asked how to find the annual rate of return on an investment that grows from $1,000 to $1,650 in five years. To solve this, we can use the formula for compound interest:

Final Amount = Principal × (1 + Rate)Time

In this case, the final amount is $1,650, the principal is $1,000, time is 5 years, and the rate is what we want to find. Rearranging the formula to solve for the rate, we get:

1 + Rate = (Final Amount / Principal)1/Time

1 + Rate = ($1,650 / $1,000)1/5

1 + Rate = 1.651/5

Rate = 1.651/5 - 1

Rate ≈ 0.1053 or 10.53%

So, the correct answer is d) 10.53%.