Mr. Sheridan is selling his house for $280,000. He bought it for $55,000 15 years ago. What is the annual return on his investment, assuming monthly compounding?

Question

Quizplus · Accepted Answer

To calculate the annual return on investment, we need to use the formula:

Annual return = [(final value / initial value)^(1/years)] - 1

Here, the final value is $280,000, the initial value is $55,000, and the number of years is 15. So,

Annual return = [(280000/55000)^(1/15)] - 1 = 0.109 or 10.9%

We need to assume monthly compounding, but since the options do not provide different answers based on compounding frequency, we can choose the best option, which is B.

Mr Sheridan Is Selling His House for $280,000