Sixteen years ago, Alicia invested $1,000. Eight years ago, Travis invested $2,0

Question

Sixteen years ago, Alicia invested $1,000. Eight years ago, Travis invested $2,000. Today, both Alicia’s and Travis’ investments are each worth $2,400. Assume that both Alicia and Travis continue to earn their respective rates of return. Which one of the following statements is correct concerning these investments?
1. Three years from today, Travis’ investment will be worth more than Alicia’s
2. One year ago, Alicia’s investment was worth less than Travis’ investment
3. Travis earns a higher rate of return than Alicia
4. Travis has earned an average annual interest rate of 3.37%
5. Alicia has earned an average annual interest rate of 6.01%

Explanation / Answer

2. One year ago, Alicia’s investment was worth less than Travis’ investment Alicia's rate = 1400/16 = $87.5/year Travis' rate = 400/8 = $50/year Alicia after 15 years: 1000 = 87.5(15) = $2312.5 Travis; rate after 7 years: 2000 + 50(7) = $2350

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