Answered: An investment of $5,000 grew to…

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An investment of $5,000 grew to $5,281.25 in nine months. What was the rate of return on the investment?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 28P

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Question

An investment of $5,000 grew to $5,281.25 in nine months. What was the rate of return on the investment?

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

Step 1

Formula:

Return on the investment = [ ( Grew value - investment value ) / investment value ] x 100

Deduction of investment value from Grew value to be divided with investment value to derive the return on investment.

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