Question

You invested $8000 in a savings bond. When you cash it in 5 years later, you received $9,250. Find the annual return.Question 5 options:15.6%1.1%2.9%13.5%

Answer 1

We have to use the following formula

$\frac{EV-IV}{IV}$

Where EV refers to the ending value ($9,250), IV refers to the initial value ($8,000).

$\frac{9250-8000}{8000}=0.156$

This is the total return rate.

Now, we find the annual return

$(1+R)^{\frac{1}{n}}-1$

Where R = 0.156 and n = 5 years.

$(1+0.156)^{\frac{1}{5}}-1=(1.156)^{\frac{1}{5}}-1=0.029$

Then, we multiply by 100 to express it in percentage

$0.029\times100=2.9$

Hence, the answer is C. 2.9%.