Question

An investment of $100,000 is worth $105,000 after 3 months. If the investment keeps growing at the current rate, at the end of one year, the annualized rate of return will be:A. 5.00%B. 20.00%C. 21.55%D. 25.00%

Answer 1

C 21.55%

Step-by-step explanation:

The investment grows by 5% in three months and assuming that the investment earns 5% for every three months (every quarter). Therefore every quarter investment earns 5%. The annualized return is calculated as follows:

Annualized return = (1 + periodic return) * (1 + periodic return).... -1 * 100

Annualized return =( 1.05 * 1.05 * 1.05 * 1.05) - 1 * 100

Annualized return = 21.55%