Determine the rate of return for the following investments. 
 
a. A five year $40000 GIC that earns an annual rate of interest of 6.5% compounded annually. 

To calculate the rate of return on the given investment, we use the **future value formula** for compound interest:

\[
A = P(1 + \frac{r}{n})^{nt}
\]

Where:
- $A$ is the future value of the investment.
- $P$ is the principal amount (initial investment).
- $r$ is the annual interest rate (in decimal form).
- $n$ is the number of times the interest is compounded per year.
- $t$ is the time the money is invested for, in years.

Given:
- $P = 40,000$
- $r = 6.5\%$ or 0.065
- $n = 1$ (since the interest is compounded annually)
- $t = 5$ years

Now, plug these values into the formula:

\[
A = 40,000 \times (1 + \frac{0.065}{1})^{1 \times 5}
\]
\[
A = 40,000 \times (1 + 0.065)^{5}
\]
\[
A = 40,000 \times (1.065)^{5}
\]

Let's calculate this value to determine the future amount and the rate of return.The future value of the investment after 5 years is approximately \$54,803.47.

To calculate the **rate of return**:

\[
\text{Rate of return} = \frac{A - P}{P} \times 100
\]
\[
\text{Rate of return} = \frac{54,803.47 - 40,000}{40,000} \times 100
\]

Let's calculate this.The rate of return on the investment over the 5-year period is approximately **37.01%**.

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

Here are 5 related questions:
1. How would the rate of return change if the interest were compounded monthly instead of annually?
2. What would be the rate of return if the interest rate were reduced to 5%?
3. How does the time period affect the future value and rate of return?
4. What happens if the initial investment amount changes to \$50,000?
5. How can the continuous compounding formula be applied to this situation?

**Tip**: Compound interest grows faster than simple interest because it adds interest on interest. Always pay attention to the compounding frequency!

Determine the rate of return for the following investments. a. A five-year $40,000 GIC that earns an annual rate of interest of 6.5% compounded annually.

Learn how to calculate the rate of return on a 5-year $40,000 GIC with an annual interest rate of 6.5%, compounded annually. Using compound interest and rate of return formulas, find out how much your investment grows over time. Suitable for Grades 10-12.

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