Nov-15th-2009
Im not a business major, is a 11% return on a 3 year investment a good investment? Why or Why not?
I earn interest monthly but the money has to sit there for 3 years. Is it a good investment? Is there better?
Its a loan I made to someone. Its 11.45% interest.
It was for three years.
It depends! First off it’s hard to say without knowing if this is the annual percentage rate (APR) or effective annual rate (EAR). The difference is whether you are looking at rates before or after the effects of compounding? I will assume that the return is the EAR.
Second, is this 11% a year, or 11% for the three year period? If you get 11% over a three year period, you are actually only getting about 3.5% a year, which is towards the lower end of the investment return spectrum. If you are getting 11% a year, that is much better and is a pretty good return.
You also want to consider the risk on the investment. How much risk are you taking with the investment? And can you handle this risk? If you can take the risk, and you are getting 11% a year, it sounds good.
Returns on investments range from:
U.S. Treasury’s – No risk – less than 1% to 3.97%
Five-year CD, – Low risk – 2.71 %
Corporate Bonds – moderate risk – typically 4-9%
Stocks – riskier – Over the long run stock have given returns of approximately 9-11% and will depend on the size of the company invested in.
is it compound interest or simple interest? What is the monthly % that is used to calculate your interest?
if it is guaranteed and paying 11% PER YEAR, that is a great investment – nothing else guaranteed is paying any more than 2-4% for 3 yrs – if it is only 11% over the 3 full yrs – that is average at best