The rate of return earned on an investment of $50,000 today that guarantees an annuity of $10,489 for six years is approximately
A) 5%
B) 7%
C) 30%
D) none of the above.

Question

Quizplus · Accepted Answer

To calculate the rate of return, we need to use the present value of the annuity formula:

Present Value = Payment / ((1+r)^n - 1) * (1+r)^(-1)

where Payment = $10,489, n = 6 years, and Present Value = $50,000.

Solving for r using a financial calculator or spreadsheet, we get:

r = 7.02%

Therefore, the rate of return earned on this investment is approximately 7%, which is closest to choice B.

The Rate of Return Earned on an Investment of $50,000