Investors Mutual Fund reported a total 10-year return of 326%. This translates to an annualized rate of return, rounded to the nearest tenth of a percent, of
A)15.6%.
B)78.4%.
C)12.5%.
D)32.6%.

Question

Quizplus · Accepted Answer

The annualized rate of return can be calculated using the formula for compound interest: $A = P(1 + r)^n$, where $A$ is the final amount, $P$ is the principal amount (initial investment), $r$ is the annual interest rate, and $n$ is the number of years. Rearranging the formula to solve for $r$, we get $r = (A/P)^{1/n} - 1$. Given a 326% return, the final amount is 426% of the initial investment (100% principal + 326% gain), or $A/P = 4.26$. Substituting $A/P = 4.26$ and $n = 10$ years into the formula gives $r = (4.26)^{1/10} - 1$, which approximately equals 0.156 or 15.6% when rounded to the nearest tenth of a percent.

Investors Mutual Fund Reported a Total 10-Year Return of 326