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Calculating average annual return

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If a private equity investment loses an average of 15% for each of its first 3 years, what average annual return must it achieve over the next 10 years in order to provide its owners a 20% annual return over the 13 year period?

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Solution Summary

The solution describes the steps to calculate average annual return for the 10 year period in the given case.

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Let the current value of private investment be x
Value of private investment after 3 years =x(1-15%)^3=0.614125x
Now let us assume it grows with a rate of r for ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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