Question 179530This question is from textbook Elementary and Intermediate Algebra
: An investment of $10,000 in the Emerging Country Debt Fund in 2001 was worth $24,780 in 2006. Use the formula to find the 5 year average annual return. The formula is r=(S/P)^1/n-1. I am totally lost with this word problem. Could somebody help?Thank you in advance.
This question is from textbook Elementary and Intermediate Algebra
Answer by stanbon(75887)   (Show Source):
You can put this solution on YOUR website! An investment of $10,000 in the Emerging Country Debt Fund in 2001 was worth $24,780 in 2006. Use the formula to find the 5 year average annual return. The formula is r=(S/P)^1/n-1. I am totally lost with this word problem.
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P=initial investment = 10,000 ; n=number of years = 5 ; and the amount S
that it is worth after n years = 24,780
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r=(S/P)^[1/(n-1)]
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Since S=24,780 and P=10,000, you get
r = (24,780/10,000)^(1/(5-1)] = 1.2546 = 125%
Comment: The "1" might refer to the investment at the beginning of each year;
then the 0.25 would be the interest rate.
For example 10,000*(1+0.2546)^4 = $24,775
This would be the value after 4 years if 10,000 was compounded yearly
at 25%
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Cheers,
Stan H.
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Cheers,
Stan H.
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