Forty years ago,your father invested $2,500. Today that investment is worth $107,921. What is the average rate of return your father earned on his investment?

Question

Quizplus · Accepted Answer

The formula for calculating average rate of return is:

[(Final value/Initial value)^(1/number of years)] - 1

In this case:

[(107,921/2,500)^(1/40)] - 1 = 0.0987 or 9.87%

Therefore, the answer is (D) 9.87%.

Forty Years Ago,your Father Invested $2,500