What annual rate of return is earned on an $895 investment that grows to $1,976 in eight years?
A) 9.14 percent
B) 9.97 percent
C) 10.41 percent
D) 11.73 percent

Question

Quizplus · Accepted Answer

The annual rate of return can be calculated using the formula for compound interest: $A = P(1 + r)^n$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount (initial investment), $r$ is the annual interest rate (decimal), and $n$ is the time the money is invested for in years. Rearranging the formula to solve for $r$, we get $r = \left(\frac{A}{P}\right)^{\frac{1}{n}} - 1$. Plugging in the given values: $A = 1976$, $P = 895$, and $n = 8$, we get $r = \left(\frac{1976}{895}\right)^{\frac{1}{8}} - 1$, which calculates to approximately 10.41 percent.

What Annual Rate of Return Is Earned on an $895