An investment offers to pay you a $10,000 a year for five years. If it costs $33,520, what will be your rate of return on the investment?
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15%
To calculate the rate of return on the investment, we need to divide the total return by the initial investment and express it as a percentage.
Step 1: Calculate the total return.
The investment pays $10,000 per year for five years, so the total return is: $10,000 x 5 = $50,000.
Step 2: Calculate the rate of return.
The rate of return is the total return divided by the initial investment, expressed as a percentage.
Rate of return = (total return / initial investment) * 100
Rate of return = ($50,000 / $33,520) * 100
Thus, the rate of return on the investment is approximately 149.1%.
To calculate the rate of return on an investment, we need to determine the percentage gain or loss relative to the initial cost. In this case, we know that the investment pays $10,000 per year for five years, and the initial cost is $33,520.
To calculate the rate of return, we can use the following formula:
Rate of return = (Total earnings - Initial cost) / Initial cost * 100
In this case, the total earnings over five years would be:
Total earnings = $10,000/year * 5 years = $50,000
Substituting these values into the formula, we can determine the rate of return:
Rate of return = ($50,000 - $33,520) / $33,520 * 100
Rate of return = $16,480 / $33,520 * 100
Rate of return ≈ 49.16%
Therefore, the rate of return on this investment is approximately 49.16%.