Question

Assume that at the beginning of the year, you purchase an investment for $14,200 that pays $95 annual income. Also assume the investment's value has increased to $15,800 by the end of the year. What is the rate of return for this investment?

Answer 1

The rate of return for the investment is approximately 11.94%, which is calculated by dividing the total return of $1,695 by the initial investment of $14,200 and then multiplying by 100 to express it as a percentage.

Step-by-step explanation:

To calculate the rate of return for the investment, we need to consider both the annual income generated by the investment and the capital gains obtained from the increase in the value of the investment over the time period. In this case, the annual income is $95, and the capital gains are the increase in value from the purchase price of $14,200 to the end-of-year value of $15,800, which is $1,600.

Thus, the total return is the sum of the annual income and the capital gains, which gives us $95 + $1,600 = $1,695. To find the rate of return, we then divide the total return by the initial investment value and multiply by 100 to get a percentage. The calculation is as follows:

Rate of Return = ($1,695 / $14,200) × 100 = 11.94%

Therefore, the rate of return for this investment over the course of the year is approximately 11.94%.