Mathematics of Investment, Algebra Sample Problem

Best Stock Fund.

The average annual return for an investment is given by the formula.

, where P is the initial investment and S is the amount it is worth after n years. The top mutual fund for 1997 in the 3-year category was Fidelity Select- Energy Services (Money Guide to Mutual Funds 1998), in which an investment of 10,000 dollars grew to 31,895.06 dollars from 1994 to 1997. Find the 3-year average annual return for this fund. (Algebra for College Students, 2nd ed., Mark Dugopolski)

Given:
S= $ 31,895.06

P= $ 10,000

n= (1997-1994)

n= 3 years

Required: The rate or the 3-year average annual return

Formula:


Solution:

r= 0.4719

r= 0.4719 x 100%

r= 47.2%

Average Annual Return.

The formula above was used to find the average annual return on an investment. a.) Derive the formula for S (the amount). b.) Solve also for P (The original principal). (Algebra for College Students, 2nd ed., Mark Dugopolski)

Given:


Required:
S- the amount that will be earned
P- the original principal

Formula: Same Formula

Solution:

a.) Answer:

Solution for b.)
Use the formula from a.) since it is already simplified.

b.) Answer

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