Over a period of 18 months, an investor has earned a return of 28.4%. The investor's annualized return is closest to:Question 70Answera.18.13%b.20.43%c.25.53%
Question
Over a period of 18 months, an investor has earned a return of 28.4%. The investor's annualized return is closest to:Question 70Answera.18.13%b.20.43%c.25.53%
Solution
To calculate the annualized return, we need to use the formula for compound interest, which is:
A = P (1 + r/n)^(nt)
Where: A = the amount of money accumulated after n years, including interest. P = the principal amount (the initial amount of money) r = annual interest rate (in decimal) n = number of times that interest is compounded per year t = time the money is invested for in years
In this case, we know that the return over 18 months (or 1.5 years) is 28.4%, so we can set up the equation as follows:
1.284 = (1 + r/1)^(1*1.5)
Solving for r gives us the annualized return rate.
Doing the math, we find that r is approximately 0.1813 or 18.13%.
So, the closest answer is a. 18.13%.
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