The Milken Company is offering you an investment that promises you $10,000 at the end of 7 years if you invest $ 6,330 today. What is the annual return on this investment?

The Milken Company

The annual return on this investment is:

= 8.3%

Explanation:

a) Data and Calculations:

Total returns at the end of 7 years = $10,000

Total investment today =                       6,330

Total returns from the investment =  $3,670

Annual return = $524 ($3,670/7)

= 8.3% ($524/$6,330 * 100)

b) The annual return on this investment is the total returns of $3,670 annualized to 7 years.  This gives an average annual return of $524, which is then used to calculate the percentage return, weighing it against the investment cost of $6,330.

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