Question

You invested $8000 in a savings bond. When you cash it in 5 years later, you received $9,250. Find the annual return.Question 5 options:15.6%1.1%2.9%13.5%

Answer 1

We have to use the following formula

`(EV-IV)/(IV)`

Where EV refers to the ending value ($9,250), IV refers to the initial value ($8,000).

`(9250-8000)/(8000)=0.156`

This is the total return rate.

Now, we find the annual return

`(1+R)^{(1)/(n)}-1`

Where R = 0.156 and n = 5 years.

`(1+0.156)^{(1)/(5)}-1=(1.156)^{(1)/(5)}-1=0.029`

Then, we multiply by 100 to express it in percentage

`0.029*100=2.9`

Hence, the answer is C. 2.9%.