A comic book was purchased for 10 cents in 1948 and is now worth $55 today. What has been the average annual compound rate of return on this item?
I tried to use the formula R=[(y/x)^(1/n)]-1 and I come up with a negative answer. Please help!
I would say you mis-applied the formula. Your formula is correct. Hint: I get R=0.11089, where y=55, x=0.1, and n=60.
To calculate the average annual compound rate of return, you can use the formula you mentioned: R = [(y/x)^(1/n)] - 1, where:
- R represents the average annual compound rate of return
- y is the ending value of the investment
- x is the initial value of the investment
- n is the number of years elapsed
In this case, the comic book was purchased for $0.10 in 1948 and is now worth $55, which means:
- x = $0.10
- y = $55
To calculate the number of years elapsed, you need to subtract the starting year (1948) from the current year, assuming the current year is 2021:
- n = 2021 - 1948 = 73 years
Now you can plug these values into the formula and calculate the average annual compound rate of return:
R = [(55/0.10)^(1/73)] - 1
Calculating this equation will give you the correct answer.