Homework SourseAn investment generated returns of 12 in the first year 26 i
An investment generated returns of -12% in the first year, 26% in the second year and 14% in the third year.
A) What is the final value of the investment if the investor invested $10,000 initially?
B) What was the average rate of return on this investment?
Solution
Intial Investment = $10,000
Return in 1st year = -12%
Total Amount after 1st year = 10,000 * (1 - 0.12)
Total Amount after 1st year = 10,000 * 0.88 = $8,800
Amount after 1st year = $8,800
Return in 2nd year = 26%
Total Amount after 2nd year = 8,800 * (1 + 0.26)
Total Amount after 2nd year = 8,800 * 1.26 = $11,088
Amount after 2nd year = $11,088
Return in 3rd year = 14%
Total Amount after 3rd year = 11,088 * (1 + 0.14)
Total Amount after 3rd year = 11,088 * 1.14 = $12,640.32
A) Final value = $12,640.32
B)
Final Value = $12640.32
Initial Value = $10,000
Return over 3 years = $2640.32
Return % = 2640.32 / 10,000 = 26.40%
Average return over 3 years = 26.40 / 3 = 8.8%
