Question

An investment offers to triple your money in 24 months (don't believe it). What rate per three months are you being offered? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) 

Rate _______ %

Answer 1

Answer 2

Return offered in 24 months=300%

Compounded annual growth rate has to be figured out.

Formula to do so is =(Ending value/Beginning value)^{1/# no of years} - 1

Ending value =300%

Beginning value =100%

Number of years=2 years.

Substituting the values in the formula = (300/100)^1/2 -1

=1.732 -1

=0.732058*100

=73.2058%

As the rate three months is required it is assumed that the return in being compounded annuallly.

Formula to compute the rate at which the value is being compounded is r = n* ((1+CAGR)^1/n -1) as the compounding frequency is quarterly, number of quarters in a year= 4.

=4*((1+0.732058)^1/4-1)

r=58.88%

Quarterly rate=r/4

=58.88%/4

Therefore three month rate with quarterly compounding =14.72%