An investor originally paid $22,000 for a vacant lot 12 years ago. If the investor is able to sell the lot today for $62,000, what would his annual rate of return be on this investment (rounded to the nearest percent)?

Question

Quizplus · Accepted Answer

To calculate the annual rate of return, we can use the following formula:

Annual Rate of Return = (Final Value / Initial Value)^(1/years) - 1

Plugging in the values given in the question, we get:

Annual Rate of Return = (62000 / 22000)^(1/12) - 1
                        = 1.11^(1/12) - 1
                        = 0.0861

Converting the decimal to a percentage, we get:

Annual Rate of Return ≈ 8.61%

Rounding to the nearest percent, the answer is C) 9%, making it the best choice.

An Investor Originally Paid $22,000 for a Vacant Lot 12