An investor purchased an asset for $1675.This investment is worth $1742 after three months.What is the effective annualised return for the investment?

Question

Quizplus · Accepted Answer

Using equation 1.1,page 11,the periodic (three-month)return is calculated as (1742 - 1675)/1675 = 0.04.The return for the three-month period is 4%.The effective annual return can be calculated using equation 1.2,page 12 as follows: [(1 + 0.04)⁴ - 1] = 0.17 or 17%.

An Investor Purchased an Asset for $1675