Question

Just need help with these, thank you in advance!

1.

Suppose that you invest $1,300 in stock. Four years later, your investment yields $1,515. What is the rate of return of your investment? The rate of return is . (Round to one decimal place.)

2.

Answer 1

(1)

Rate of return = ($1,515 / $1,300)^(1/4) - 1 = (1.1654)^0.25 - 1 = 1.039 - 1 = 0.039 = 3.9%

(2)

Monthly rate of return is found by Excel RATE function as follows.

Purchase Price/Loan Amount (PV) ($) =	-25,700
Monthly Loan Payment (PMT) ($) =	523.55
Number of Months (NPER) =	60
Monthly Rate of Return =	0.68%

Effective rate = (1 + 0.0068)¹² - 1 = (1.0068)¹² - 1 = 1.085 - 1 = 0.085 = 8.5%