A local brokerage firm is offering a zero coupon certificate of deposit for $10,000. At maturity, threeyears from now, the investor will receive $14,000. What is the rate of return on this investment?

Question

Quizplus · Accepted Answer

To find the rate of return, we can use the formula:
End value = Principal x (1 + rate)^time
$14,000 = $10,000 x (1 + rate)^3
Solving for the rate, we get:
(1 + rate)^3 = 1.4
1 + rate = 1.4^(1/3)
rate = 1.4^(1/3) - 1
rate = 0.12 or 12%
Therefore, the rate of return on this investment is 12%.

A Local Brokerage Firm Is Offering a Zero Coupon Certificate