A company that manufactures generalpurpose transducers inves

A company that manufactures general-purpose transducers invested $2 million 4 years ago in high-yield junk bonds. If the bonds are now worth $2.8 million, what rate of return per year did the company make on the basis of (a) simple interest and (b) compound interest?

Solution

(a). Future value=present value(1+rt)

2.8=2(1+4r)

1.4=1+4r

r=0.1

(b.)Future value=present value(1+r)^t

2.8=2(1+r)⁴

1.4=(1+r)⁴

r =1.08-1=0.8