You have been investing $300 a month for the last 8 years. Today, your investment account is worth $43,262. What is your average rate of return on your investments?

To find the average rate of return on your investments, we need to use the **future value of a series of cash flows** formula. Since you have been making monthly contributions and the final amount is known, we can work backward to calculate the rate of return.

The formula for the future value of a series of regular contributions (also known as an annuity) is:

\[
FV = P \times \frac{{(1 + r)^n - 1}}{r}
\]

Where:
- $ FV $ is the future value of the investment ($43,262 in this case),
- $ P $ is the monthly contribution ($300),
- $ r $ is the monthly interest rate (which we are solving for),
- $ n $ is the total number of payments (8 years × 12 months = 96 months).

We can now solve for $ r $, which represents the monthly rate of return. Once we find the monthly rate, we can convert it into an annualized rate.

Let me calculate this for you.The average annual rate of return on your investment is approximately **10.14%**.

Would you like more details or have any questions about this calculation?

Here are five related questions:
1. How does compounding frequency affect the rate of return?
2. What happens if you change the monthly contribution amount?
3. How would the future value change with a different rate of return?
4. What is the difference between the nominal and effective rate of return?
5. How can inflation impact the real rate of return on investments?

**Tip:** Consistent monthly contributions take advantage of dollar-cost averaging, which can reduce the impact of market volatility over time.

Discover how to calculate the average rate of return for a $300 monthly investment over 8 years, with a final investment value of $43,262. Learn about future value, annuities, and compounding interest, along with key formulas for finance calculations. Ideal for college-level finance students.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation