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Math Help - Average Annual Return

  1. #1
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    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.



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  2. #2
    A riddle wrapped in an enigma
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    Quote Originally Posted by magentarita View Post
    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:

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

    Look here:Bond Formulas

    And is r the annual interest rate of return?
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  3. #3
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    yes..............

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

    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.

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