Question

1. You made an investment of $8,000 into an account that paid you an annual interest rate of 3.1 percent for the first 5 years and 7.5percent for the next 10 years. What was your annual rate of return over the entire 15 years?

Answer 1

Present value = Future value/(1+i)^n

i = interest rate per period

n= number of periods

=>

Future value = 8000 * (1+0.031)^5 * (1+0.075)^10

= 19207.37

=>

8000 * (1+r)^15 = 19207.37

=>

annual rate r = 6.01%