Question

You’re trying to choose between two different investments, both of which have up-front costs of $104,000. Investment G returns $169,000 in 9 years. Investment H returns $289,000 in 16 years.

Calculate the rate of return for each of these investments. (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

	Rate of Return
Investment G		%
Investment H		%

Answer 1

Annual rate of return = [Future value /present value ]^1/n    -1

          

Investment G: [169000/104000]^1/9     -1

                  = [1.625]^.11111      -1

                  = 1.0554 -1

                   = .0554 or 5.54%

Investment H =[289000/104000]^1/16    -1

                = [2.77885]^ .0625      -1

                = 1.066-1

               = .0660 or 6.60%