Compound annual rate of return

Question

Claudia invested $2,000 at the end of the year for each of the last five years. By the end of the fifth year, she had accumulated $11,500. Her compound annual rate of return was:

A) 3%

B. 15%

C. 6%

D. 7%

Answer 1

Hello, thank you for taking the time to post your question!

The underlying formula that you want to use to solve this one by hand is

FV = PMT * ((1 + r)^n – 1)/r

You could also use something like a financial calculator or spreadsheet software like Microsoft Excel to solve for the =RATE() after inputing in the parameters that are given to us in the question.

Either way, when I solve it I end up getting a value of 7% for the interest rate in this scenario

I hope that helps get you moving in the right direction! Feel free to reach out if you have any additional questions beyond that :)