Question

Juan invested $24,000 in a mutual fund 5 yr ago. Today his investment is worth $31,966. Find the effective annual rate of return on his investment over the 5-yr period. (Round your answer to two decimal places.)

Answer 1

Amount Invested by Juan 5 years ago = $24,000

Value of Invested today = $31,966

Calculating the Effective ANnual rate of return earned on Investment over 5 year period:-

Value of Invested today = Amount Invested*(1+r)^n

where,

r = Effective Interest rate

n = No of years = 5

$31,966 = $24,000*(1+r)^5

1.33191666666 = (1+r)^5

Taking 5-root on both sides,

1.0590 = (1+r)

r = 5.90%

So, the effective annual rate of return on his investment over the 5-yr period is 5.90%