assume you invest 12000 in a risky asset and 4 years later t

assume you invest $12,000 in a risky asset and 4 years later the value is $16,000. What was your compound average rate of return on the investment?

Solution

This question requires application of time value of money concept, according to which

FV = PV * (1 + r)ⁿ

16000 = 12000 * (1 + r)⁴

1.3333 = (1 + r)⁴

1.07456 = 1 + r

r = 7.46%