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Maggie deposits $10,000 today and is promised a return of $17,000 in eight years. What is the implied annual rate of return?
  • a)
    6.86 percent
  • b)
    7.06 percent
  • c)
    5.99 percent
  • d)
    6.07 percent
Correct answer is option 'A'. Can you explain this answer?

Answers

FV=PV(1+k)n
17,000=10,000(1+ k)8
8ln(1+k)=ln(1.7), therefore k=6.86%
Or using a financial calculator (TI BAII Plus),
N=8, PV= –10,000, PMT=0, FV=17,000, CPT I/Y=6.86%

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Maggie deposits $10,000 today and is promised a return of $17,000 in eight years. What is the implied annual rate of return?a)6.86 percentb)7.06 percentc)5.99 percentd)6.07 percentCorrect answer is option 'A'. Can you explain this answer?

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FV=PV(1+k)n17,000=10,000(1+ k)88ln(1+k)=ln(1.7), therefore k=6.86%Or using a financial calculator (TI BAII Plus),N=8, PV= –10,000, PMT=0, FV=17,000, CPT I/Y=6.86%