Question

if at the beginning of 1925 you had incested 10,000 in a portfolio of small-company stocks and rolled over your investment every year until the end of 2000, you would have had a portfolio value of 64,402.23. What would have been your annualized compounded rate of return on your investment?

Answer 1

Answer:

Rate of return is 2.52%

Explanation:

Investment in 1925 = $10,000

Portfolio value in 2000 = $64,402.23

Number of years = 2000-1925 = 75 years

Rate of return = ?

Using following formula to calculate rate of return.

A = P x ( 1 + r )^n

64,402.23 = 10,000 x ( 1 + r )^75

64,402.23 / 10,000 = ( 1 + r )^75

6.440223 =  ( 1 + r )^75

$\sqrt[75]{6.440223} = \sqrt[75]{(1+ r)^75}$

1.02515 = 1 + r

r = 1.02515 - 1

r = 0.02515

r = 2.52%