Question

Expected Rate of Return Washington-Pacific (W-P) Invests $3 million to buy a tract of land and plant some young pine trees. The trees can be harvested in 15 years, at which time W-P plans to sell the forest at an expected price of $6 million. What is W.P's expected rate of return? Do not round Intermediate calculations. Round your answer to two decimal places

Answer 1

Amount invested = $3,000,000
Amount received = $6,000,000
Period = 15 years

Rate of return = (Amount received / Amount invested) ^ (1 / Period) - 1
Rate of return = ($6,000,000 / $3,000,000) ^ (1 / 15) - 1
Rate of return = 2 ^ (1 / 15) - 1
Rate of return = 1.0473 - 1
Rate of return = 0.0473 or 4.73%

So, the expected rate of return is 4.73%