Question

I paid $35,000 for a vintage car exactly 12 years ago. Today I sold the car for $90,000. What effective annualised interest rate did I earn? (as a percentage to the closest two decimal places; do not show the % sign. Eg 2.876% is 2.88) Answer:

Answer 1

future value = Present value*(1+r)^n

r = annualised interest rate

n = number of periods = 12

90,000 = 35,000*(1+r)^12

(1+r)^12 = 90,000 / 35000

r = (2.571429)^(1/12) - 1

Annualised return = 8.19

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