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Rate of return Personal Finance Problem Rishi Singh has ​$1 comma 700 to invest. His investment counselor suggests that Rishi should buy an investment that pays no interest but will be worth ​$2 comma 300 after 9 years.
a. What average annual rate of return will Rishi earn with this​ investment?
b. Rishi is considering another​ investment, of equal​ risk, that earns an annual return of 1.42​% . Which investment should he​ make, and​ why?

Respuesta :

Answer:

given,

Future Value = $2,300

Present value = $1,700

time = 9 years

a) Annual rate of return

[tex]r = (\dfrac{FV}{PV})^{\dfrac{1}{n}}-1[/tex]

[tex]r = (\dfrac{2,300}{1,700})^{\dfrac{1}{9}}-1[/tex]

[tex]r = 1.034-1[/tex]

r = 3.4 %

b) amount of investment to be made

[tex]r = (\dfrac{FV}{PV})^{\dfrac{1}{n}}-1[/tex]

[tex]0.0142 = (\dfrac{2,300}{PV})^{\dfrac{1}{9}}-1[/tex]

[tex]1.135= (\dfrac{2,300}{PV})[/tex]

[tex]PV= (\dfrac{2,300}{1.135})[/tex]

PV = $2,027

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