What annual rate of return is earned on a $1,000 investment when it grows to $2,700 in eight years?

Answer 1

Whenever dealing with time value of money, there are 5 variables we must take into account.

They are:

n: number of compounding periods

r: the discount rate

pmt: payments each period

pv: present value

fv: future value

In this problem these are given:

n = 8 years

pv = $1000

fv = $2700

pmt = $0 (not mentioned)

r = ?

The formula:

FV=PV(1+r)ⁿ

now rework to solve for r:

r= (FV/PV)^(1/n) -1

r=(2700/1000)^(1/8)-1

r = 13.22%

Or on excel:

=RATE(8,0,-1000,2700,0,0)