The annual returns will be calculated as follows: a] Here we use the formula: A=p(1+r/100)^n A=future amount p=principle r=returns n=time We are given: A=500, p=400, t=1 Plugging the values in the formula we obtain: 500=400(1+r)^1 simplifying and solving for r: 1.25=1+r thus r=1.25-1 r=0.25~25%
b] Using the formula above: A=p(1+r/100)^n A=2500+100=2600, p=2000, n=1 year plugging the values in the equation we obtain: 2600=2000(1+r)^1 simplifying and solving for r we obtain: 2600/2000=1+r 1.3=1+r hence r=1.3-1 r=0.3~30%
