Question

What annual rate of return is earned on a $3,300 investment when it grows to $7,100 in twelve years?

Answer 1

To calculate rate of interest we use formulae

Amount =Principal * [ 1+ R/100] ^ N

Where R is rate of interest

And, N is Number of years

We will put given figure in formuale,

Amount = 7100

Principal = 3300

Number of years =12

So,

7100 = 3300 [ 1+ R/100] ^ 12

7100/3300 = [ 1+ R/100] ^ 12

2.15 = [1+R/100] ^ 12

To proceed further, we have to check the value of R in Log table to arrive at a conclusion. Also, hit and trial method can be used to find aprroximate value. By doing this

We get to know that 2.15 = [ 1+ R/100] ^12

When R will be 6.6%

So, the annual return will be approximately 6.6%.