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#1 2005-12-13 12:15:37

Nestea
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compound interest

Early last year, the Agnessa Growth Fund ran advertisements in the financial pages of major newspapers. The "ad" had primarily empty space containing the simple message:

20,000 INVESTED IN AGNESSA INVESTMENT GROWTH FUND IN 1957
WOULD BE WORTH $2.6 MILLION TODAY
What compound annual rate of return did the fund realize over the period ending December 31 last year?
For full marks your answer should be rounded to the nearest hundredth of a percent.

#2 2005-12-13 15:31:54

MathsIsFun
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Re: compound interest

1957 to 2004 = 47 elapsed Years

(or to 2003=46 years??), anyway:

20,000 × (1+i)^47 = 2,600,000  (i=interest rate)

Rearrange: 1+i = (2,600,000/20,000)^(1/47) = 1.10912

Therefore i = .10912 = 10.912%

Check: 20,000 × 1.10912^47 = 2,600,286


"The physicists defer only to mathematicians, and the mathematicians defer only to God ..."  - Leon M. Lederman

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