Answer:
Compound rate of return on the investment is 13.06%
Explanation:
Available data:
Investment = Present Value = PV = $30,000
Future Value = FV = $80,000
Number of years = n = 8 years
Compound rate of return = r = ?
Use Future value formula to calculate the Compound rate of return as follow:
Future Value = Present Value x [tex]( 1 + rate of return )^{Number of years}[/tex]
FV = PV x [tex]( 1 + r )^{n}[/tex]
$80,000 = $30,000 x [tex]( 1 + r )^{8}[/tex]
[tex]\frac{80,000}{30,000}[/tex] = [tex]( 1 + r )^{8}[/tex]
2.67 = [tex]( 1 + r )^{8}[/tex]
[tex]\sqrt[8]{2.67}[/tex] = [tex]\sqrt[8]{( 1 + r )^8}[/tex]
1.1306 = 1 + r ([tex]\sqrt[8]{2.67}[/tex] = 1.1306 is rounded off to four decimal place)
r = 1.1306 - 1
r = 0.1306
r = 13.06%
compound rate of return on the investment is 13.06%.
