Using the data in Extract B, calculate the average rate of return from purchasing a pair of glasses - Edexcel - A-Level Business - Question 1 - 2019 - Paper 2

The total return is calculated based on the estimated increased earnings per person and the expected life of the glasses:

[ \text{Total Return} = \text{Estimated Increased Earnings} \times \text{Expected Life} ]

Using the values from Extract B:

• Estimated Increased Earnings: £108
• Expected Life: 2 years

[ \text{Total Return} = 108 \times 2 = 216 \text{ GBP} ]

Next, we compute the average annual return by subtracting the initial price from the total return:

[ \text{Average Annual Return} = \text{Total Return} - \text{Initial Cost} ]

Where:

• Initial Cost: £4

So, [ \text{Average Annual Return} = 216 - 4 = 212 \text{ GBP} ]

Now, using the formula provided:

[ \text{ARR} = \frac{212}{4} \times 100 = 5300% ]

Thus, the average rate of return on purchasing the glasses is 5300%.