Question

5. Badger Pump Company invested $500,000 five years ago in a new product line that is now worth $900,000. What rate of return did the company earn on a compounded interest basis? The answer should be to four significant figures.

Answer 1

A = P {1 + r/n)^n + Where A = Current worth P = invested worth t = time = 5years r = rate of interest = ? n = [Because Because Compound annually] Therefore 900000 = 500000 {1 + r}^5 9/5 = (1 + r)^5 1.8 = (1 + r)^5 1 + r = (1.8)^1/5 1 + r = 1.1247 Therefore r = 0.124746 r = 12.4746%