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 find out the annual return on investment, we use the compound interest formula:

A=P(1+(r/n))^(nt)

Where:
A = Amount (final value)
P = Principal (initial value)
r = Annual Interest Rate (unknown)
n = Number of Times Compounded in a year
t = Number of Years

We know:
P = $55,000
A = $280,000
n = 12 (monthly compounding)
t = 15 years

Now we can solve for r :
280,000 = 55,000(1+(r/12))^(12*15)
5.0901% = r

Therefore, the annual return on his investment, assuming monthly compounding, is 5.09%, which is answer choice D).

MrSheridan Is Selling His House for $280,000