You have $1,800 that you want to invest in your classmate's start-up business

Finance Oct 21, 2020

You have $1,800 that you want to invest in your classmate's start-up business. You believe the business idea to be great and expect to get $4,900 back at the end of three years. If all goes according to plan, what will be the return on your investment?

Expert Solution

Computation of the return on investment:-

FV = PV*(1+Rate)^n

$4,900 = $1,800*(1+Rate)^3

(1+Rate)^3 = $4,900 / $1,800

(1+Rate) = 2.7222^(1/3)

Rate = 1.3963 - 1

= 39.63%

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