Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Rate of return Personal Finance Problem Rishi Singh has $1,300 to invest
Rate of return Personal Finance Problem Rishi Singh has $1,300 to invest. His investment counselor suggests that Rishi should buy an investment that pays no interest but will be worth $1,700 after 2 years. a. What average annual rate of return will Rishi earn with this investment? b. Rishi is considering another investment, of equal risk, that earns an annual return of 12.35%. Which investment should he make, and why? a. The annual rate of return Rishi will earn with this investment, r, is 0% (Round to two decimal places.)
a) Here formula of Future value can be used
Future value = present value(1+r)^n
Future value = $1700
Present value = $ 1300
n = no. of years = 2
1700 = 1300(1+r)^2
= 1.30769 = (1+r)^2
= 1.30769^0.5 = 1+r
= 1.14354 = 1+r
r = 0.14354
i.e 14.35%
b) Rishi should make investment in first scheme as it provides higher return i.e 14.35%
