Question

Question 1 1 pts 2 months ago, you purchased 799 shares of a non-dividend paying stock for $28.51 a share. Today, you sold those shares for $33.03 a share. What was your annualized rate of return (in percent) on this investment? Answer to two decimals.

Answer 1

Solution:

Calculation of Rate of Return:

The formula for calculating the Rate of Return is

= [ ( Sale proceeds – Purchase cost ) / Purchase cost ]

As per the information given in the question is

Purchase Price per share = $ 28.51   ; No. of shares purchased = 799

Total Purchase cost = Purchase Price per share * No. of shares purchased

= $ 28.51 * 799 = $ 22,779.49

Sale Price per share = $ 33.03   ; No. of shares purchased = 799

Total Sale proceeds = Sale Price per share * No. of shares purchased

= $ 33.03 * 799 = $ 26,390.97

Applying the above values in the formula we have

= [ ( 26,390.97 – 22,779.49 ) / 22,779.49 ]

= [ 3,611.48 / 22,779.49 ]

= 0.158541

= 15.8541 %

Thus the rate of return is 15.8541 %

Calculation of Annualized Rate of Return:

The formula for calculating the annualized rate of return :

Annualized Rate of Return = Rate of Return /n

Where n = Holding period in months / 12

As per the information available we have

Rate of Return = 15.8541 %

Holding period in months = 2 months

Applying the above information in the formula we have

= 15.8541 % / ( 2 / 12 )

= 15.8541 % / 0.166667

= 95.1246 %

= 95.12 % ( when rounded off to two decimal places )

Thus the Annualized rate of return = 95.12 %