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Homework answers / question archive /  Interest rate: Sofie wants to invest $25,000 in a spa that her sister is starting

 Interest rate: Sofie wants to invest $25,000 in a spa that her sister is starting

Accounting

 Interest rate: Sofie wants to invest $25,000 in a spa that her sister is starting. She will triple her investment in six years. What is the rate of return that Sofie is being promised? (Rounded to the nearest per cent.) 
a. 18% *b. 20% c. 12% d. 25% 
 

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Answer

So, the correct option is B "20%".

Explanation

Computation of Rate of Return:

Amount = Principal*(1+Rate)^Time

$25,000*3 = $25,000*(1+Rate)^6

$75,000/$25,000 = (1+Rate)^6 

3 = (1+Rate)^6

3^(1/6) = 1+Rate

1.2009 = 1+Rate

1.2009 - 1 = Rate

Rate = 0.2009 or 20.09% or 20%

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