Question

a. You purchase a stock for $9,000 and collect $300 at the end of each year in dividends. You sell the stock for $10,500 after five years. What was the annual return on your $9,000 investment?   

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b. You purchase a building for $850,000, collect annual rent (after expenses) of $110,000, and sell the building for $950,000 after seven years. What is the annual return on this investment?

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c. You buy a stock for $1,000 and expect to sell it for $850 after five years but also expect to collect dividends of $130 a year. Calculate the return on this investment and prove that it is less than 13 percent.

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Answer 1

Ans:- In this question, we need to find the annual rate of return on investment in all the parts.

Total Rate of return is given by (Total Return - Initial Investment) / Initial Investment

Annual Rate of return is given by Total return / Number of years.

(a) The annual rate of return in part (a) over 5 years is 6.67%.

(b) The annual rate of return in Part (b) over 7 years is 14.62%.

(c) In part (c) the return on investment is 10%, hence it is proved that it is less than 13%.

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