Question

When your father was born 46 years ago, his grandparents deposited $450 in an account for him. Today, that account is worth $25,000. What was the annual rate of return on this account

Answer 1

Answer:

9.1%

Explanation:

To calculate the annual rate of return on this account you can use the following formula:

r = ( FV / PV )^1/n - 1, where

r= rate of return

FV= future value= 25,000

PV= present value= 450

n= number of periods of time= 46

r=(25,000/450)^(1/46)-1

r=55.56^0.0217-1

r=1.091-1

r=0.091 → 9.1%

According to this, the annual rate of return on this account was 9.1%.