Question

You made an investment of $16,500 into an account that paid you an annual interest rate of 2.8 percent for the first 7 years and 7.2 percent for the next 14 years. What was your annual rate of return over the entire 21 years

Answer 1

0.05712790 or 5.71%

Step-by-step explanation:

Annual rate of return = [(1+ r1)^n1 x (1 + r2)^n2]^[1/(n1 + n2)] - 1

n1 is the time period in which annual interest rate =2.8%

n2 is the time period in which annual interest rate =7.2%

So, n1 = 7 years and n2 = 14 years

= [(1+2.8%)^7 x (1+7.2%)^14]^[1/(7 + 14)] - 1

= (1.21325420 x 2.64683577) ^ 1 / 21 - 1

= 1.05712790 - 1

= 0.05712790 or 5.71%