Chapter 7, Problem 1ST

To determine

Calculate the compound annual return.

Explanation of Solution

Time period is denoted by n and interest rate is denoted by i. Compound annual return (i) can be calculated as follows.

$\begin{array}{c}\text{Present value}{\left(1+\text{i}\right)}^{\text{n}}=\text{Future value}\\ \text{337}\text{.95}{\left(1+\text{i}\right)}^{\text{5}}=\text{1,014}\text{.92}\\ =0.246\end{array}$

 Annual compound interest rate is 24.6%.  Thus, option ‘c’ is correct.