What Is the Expected Rate of Return on a $3 Million Investment Over Ten Years?

[jhayes]

Homework Statement

I have searched the net for an online calculator to figure out this problem. Your expertise would help!

An investment of 3 million dollars is expected to become 6 million dollars in ten years. What is the expected rate of return?

Homework Equations

E(Ri) = Rf + ßi(Rm – Rf); whereby E(Ri) is the expected rate of return on an investment, Rf is the rate of return on risk-free asset, ßi is an investment's beta, and (Rm – Rf) is the market risk premium;

The Attempt at a Solution

 

[Redbelly98]

Since we're mostly people with physics and math backgrounds, many people in here probably don't even know what beta or market risk premium mean.

When I first read the question, it looked like a basic exponential growth problem, and they're asking for the annual percentage yield (APY) for the investment.

 

[thomate1]

Thank you for reaching out for assistance with this problem. I understand the importance of accurately calculating expected rates of return in investments. The equation you provided is a commonly used method to calculate expected rates of return, and I can certainly help you apply it to this specific scenario.

To begin, we first need to determine the risk-free rate, which is typically the rate of return on a government bond. Let's assume that the current risk-free rate is 2%. Next, we need to determine the investment's beta, which measures the volatility of the investment compared to the overall market. Without this information, it is difficult to accurately calculate the expected rate of return. So, I would recommend reaching out to the source of this investment or conducting further research to determine its beta.

Assuming we have the necessary information, we can now calculate the expected rate of return using the equation you provided. Once we have this value, we can compare it to the expected return of 6 million dollars in ten years to determine if it is a favorable investment. It is also important to consider the potential risks associated with this investment and how they may impact the expected rate of return.

I hope this helps guide you in your calculations. If you need further assistance or clarification, please do not hesitate to reach out. Best of luck with your homework!