# Average Annual Return

• Nov 4th 2008, 05:50 AM
magentarita
Average Annual Return
Top bond fund. An investment of $10,000 in the Emerging Country Debt Fund in 2001 was worth$24,780 in 2006. Use the formula :

r = (s/p)^1/n - 1 to find the 5-year average annual return.

MY WORK:

p = 10,000

s = 24,780

n - 1 = 2006 - 2001 = 5 and so, n = 5...Does n = 5?????

I think the formula tells me thar (s/p) is raised to the (1/n-1) power.

• Nov 4th 2008, 07:02 AM
masters
Quote:

Originally Posted by magentarita
Top bond fund. An investment of $10,000 in the Emerging Country Debt Fund in 2001 was worth$24,780 in 2006. Use the formula :

r = (s/p)^1/n - 1 to find the 5-year average annual return.

MY WORK:

p = 10,000

s = 24,780

n - 1 = 2006 - 2001 = 5 and so, n = 5...Does n = 5????? Yes

I think the formula tells me thar (s/p) is raised to the (1/n-1) power.

The formula looks suspect to me. Are you sure it's not:

$\displaystyle r=\left(\frac{s}{p}\right)^\frac{1}{n}-1$

Look here:Bond Formulas

And is r the annual interest rate of return?
• Nov 4th 2008, 08:49 PM
magentarita
yes..............
Quote:

Originally Posted by masters
The formula looks suspect to me. Are you sure it's not:

$\displaystyle r=\left(\frac{s}{p}\right)^\frac{1}{n}-1$

Look here:Bond Formulas

And is r the annual interest rate of return?

Yes, the formula is as you said.

Thanks