Question

You will invest $25,000 in an ice cream shop your sister is starting. You expect to triple your investment in six years. What is the rate of return that you have in mind? (Rounded to the nearest percent.)

Answer 1

r = 20.09%

Step-by-step explanation:

we can use the future value formula to calculate the expected rate of return:

future value = present value x (1 + r)ⁿ

• future value = $25,000 x 3 = $75,000
• present value = $25,000
• n = 6

$75,000 = $25,000 x (1 + r)⁶

(1 + r)⁶ = $75,000 / $25,000 = 3

⁶√(1 + r)⁶ = ⁶√3

1 + r = 1.2009

r = 0.2009 = 20.09%