Lakeside Inc. invested $735,000 at an 11.25% rate of return. The company sold their investment for $1,067,425. How much longer would Lakeside have had to wait if they had wanted to sell their investment for $1.25 million?
A) .98 year
B) 1.48 years
C) 1.98 years
D) 2.31 years
E) 3.50 years

Question

Quizplus · Accepted Answer

First, calculate the annual interest earned by the investment: $735,000 * 11.25% = $82,687.50. To find out how much more money is needed to reach $1.25 million from the selling price of $1,067,425, subtract $1,067,425 from $1,250,000, which equals $182,575. Then, divide $182,575 by the annual interest of $82,687.50 to find out how many more years are needed: $182,575 / $82,687.50 = 2.21. Since the question asks for how much longer beyond the initial period, subtract the initial period (0.73 years, calculated from the first profit of $332,425 over $82,687.50 per year) from 2.21 years to get approximately 1.48 years.