Suppose an investment offers to triple your money in one year? What rate of retu
ID: 2818345 • Letter: S
Question
Suppose an investment offers to triple your money in one year? What rate of return are you being offered? Assume interest is compounded annually. Enter your answer as a decimal rounded to four decimal places (e.g., enter 0.0945 below if your answer is 9.45%). Hint: The promise is to triple your money in one year regardless of how much you invest, so select any amount as the initial investment amount. Then figure out what that amount it should be at the end of the year if it is tripled. Use these values to solve for the rate.
Explanation / Answer
We use the formula:
A=P(1+r/100)^n
where
A=future value($3x say)
P=present value($x say)
r=rate of interest
n=time period.
3x=x*(1+r/100)^1
(3)^(1)=(1+r/100)
(1+r/100)=3
r=(3-1)*100
=200%
=2