- #1

nando94

- 33

- 0

a. 6%

b. 15%

c. 29%

d. 36%

e. 45%

here is the answer. Im getting lost after knowing that he has 80% after the first year.

29%

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- Thread starter nando94
- Start date

- #1

nando94

- 33

- 0

a. 6%

b. 15%

c. 29%

d. 36%

e. 45%

here is the answer. Im getting lost after knowing that he has 80% after the first year.

29%

- #2

DiracRules

- 111

- 0

Let's say that k is the annual return for the next two years.

Can you write, in terms of k and C, the interest at the end of the second and third year?

That is, after the first year, the interest is -0.2C, where -0.2 is the tax of interest that year.

You will get a quadratic equation in k, and solving you get the answer.

- #3

uart

Science Advisor

- 2,797

- 21

At the end of 3 years however he requires 1.1^3 x to achieve his target. So he has to go from 0.8x to 1.1^3 x in two years.

If the multiplying factor per year is "a" (btw, a = 1+r), then he requires

Solve the above for "a".

- #4

PeterO

Homework Helper

- 2,435

- 62

a. 6%

b. 15%

c. 29%

d. 36%

e. 45%

here is the answer. Im getting lost after knowing that he has 80% after the first year.

29%

This is a multiple choice question, so as such you don't have to

We could compare the market to a simple investment.

With compound interest we gain a little more than with simple interest. The shorter the compounding period, the [slightly] better the gain. [Interest paid monthly does better than interest paid annually]. but really large differences take quite a long time period to show up

If your reduced funds were invested, what Simple interest rate would achieve your required return in 2 more years. As a compounding interest, you could expect the required return to be slightly less than that.

Don't forget you want to average a +10% return for each year of the whole investment.

Note: Had the Options offered all been within 1% of each other, you would clearly be required to calculate a more accurate answer - but it still may be quicker to calculate the final value with each of the offered rates to see which one works, rather than reverse solve an exponential equation.

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