An investor originally paid $22,000 for a vacant lot twelve years ago. If the investor is able to sell the lot today for $62,000
, what would his annual rate of return be on this investment (rounded to the nearest percent)?
a.7%
b.9%
c.5%
d.11%
1 answer:
Answer:
b.9%
Explanation:
Formula for annual rate of return formula is as follows;
Annual rate of return = [ (New value/ Initial value)^(1/t) ] -1
t = the total holding period of investment = 12 years
Old value = 22,000
New value = 62,000
Next, plug in the numbers to the formula;
Annual rate of return; r = [ (62,000/22,000) ^(1/12) ] -1
r = [2.8182 ^(1/12)] - 1
r = 1.0902 -1
r = 0.0902 or 9%
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