Homework Answers
HOLDING PERIOD RETURN OF THE CAR:
THAT IS , CURRENT PRICE MINUS THE PURCHASE PRICE DIVIDED BY PURCHASE PRICE
THEREFORE, CURRENT PRICE = $ 79200 , PURCHASE PRICE = $ 8800
GIVES, $79200-$8800 / $8800 = 8 or 800%
ANNUAL RATE OF RETURN
= ( 1+r) raised to 5 minus 1 = (1+8)rasied to 5 minus 1
gives ( 1 + 32,768)- 1 = 32,768 or 327.68%
EFFECTIVE ANNUAL RETURN ( AVERAGE ANNUAL NET EARNING DIVIDED BY INITIAL INVESTMENT MULTIPIED BY 100)
WE HAVE SOLD PRICE = $79200 SO AVERAGE PRICE OF YEAR = $79200/5= $15840
THEREFORE, $15840/ $8800 *100= 180%
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