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29 October, 18:52

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

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  1. 29 October, 20:38
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    A. 6,86%

    Explanation:

    We use the formula present value to future value and we clear the interest:

    Present value (PV) = future value (FV) / (1+interest (i)) ^number of periods (n)

    PV=FV / (1+i) ^n

    (1+i) ^n=FV/PV

    (1+i) = (FV/PV) ^ (1/n)

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

    For this problem:

    i = (($17,000/$10,000) ^ (1/8)) - 1

    i=0,6857

    i = 6,86%
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