Now you find the cube root of 1.2 (which is 1.06265 or 1.0627)
Since the 1 represents the initial investment, you need a return of .0627 which, converted to percentage is 6.27%
Your problem is called Compound Annual Growth Rate (CAGR). The formula for computing CAGR is:
CAGR = (fv/pv) ^ (1/t) - 1
CAGR = (3000/2500) ^ (1/3) - 1
CAGR = 0.062658569 or about 6.27%
I have this so far, I just don't know what to do in the end. Thanks
You have an opportunity to invest $2,500 today and receive $3,000 in three years. What will be the return on your investment?
Investment today = PV = $2,500
Amount to be received back = FV3= $3,000
Time of investment = n = 3
Return on the investment = i = ?
FVn = PV (1 + i)n
$3,000 = $2,500 (1 + i)3
$3,000/$2,500 = (1 + i)3 <-- right here... how does this equal below?
i = 6.27%
