A stuffed animal dealer tells you that a fish he bought for $8 four years ago is now worth $200 follow the steps below to find the effective yield for this investment.

Question

Begin with the equation 8(1+r) ^4=200.Solve for (1+r) ^4
Take the common logarithm of each side of the equation.

Use the power property of Logarithms to rewrite log (1+r) ^4
Solve the equation for log (1+r)
Use exponential logarithmic inverse property to eliminate the logarithm
(Hint: Remember that these are common logarithms) Then solve for R.

If the current trend continues, how much will a $1000 investment in stuffed fish be worth in 3 years?

Under these conditions how long will it be before you can buy your computer? Explain how you found your answer.

Answer 1

You don't even need logs to do that question. From...

8(1+r) ^4=200
(1+r)^4 = 25

take the fourth root, (take the square root twice in a row) to get

1 + r = 2.236058
r = 1.236

the rate of return is 123.6% (wow)

so $1000 invested at that rate for 3 years would have a value of
1000(2.236)^3
= $11,180.34