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You made an investment of $15,000 into an account that paid you an annual interest rate of 3.8 percent for the first 8 years and 8.2 percent for the next 10 years. What was your annual rate of return over
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13 votes
13 votes
You made an investment of $15,000 into an account that paid you an annual interest rate of 3.8 percent for the first 8 years and 8.2 percent for the next 10 years. What was your annual rate of return over the entire 18 years

User Stuart Robson
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1 Answer

5 votes
5 votes

Answer: 6.22%

Step-by-step explanation:

To find the annual rate of return, find the geometric mean of the returns:

= ¹⁸√ (1 + 3.8%)⁸ * (1 + 8.2%)¹⁰ - 1

= ¹⁸√ 2.9638173484126186153 - 1

= 1.0622187633434 - 1

= 6.22%

User JPZ
by
2.3k points
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