Question

Six years after buying 200 shares of XYZ stock for $50 per share, you sell the stock for $15,600. What is the total return and annual return?

Option 1: Total return is 312%, and annual return is 52%.
Option 2: Total return is 206%, and annual return is 34%.
Option 3: Total return is 124%, and annual return is 20.67%.
Option 4: Total return is 250%, and annual return is 41.67%.

Answer 1

To calculate the total return on an investment, subtract the initial investment from the final value and then divide that difference by the initial investment. The annual return can be calculated using the formula (1 + Total Return)^(1 / Number of Years) - 1. The correct answer is Option 3: Total return is 124%, and annual return is 20.67%.

Step-by-step explanation:

To calculate the total return on an investment, you need to subtract the initial investment from the final value and then divide that difference by the initial investment. In this case, the initial investment is $10,000 (200 shares x $50 per share) and the final value is $15,600. So the total return is ($15,600 - $10,000) / $10,000 = 0.56 or 56%.

To calculate the annual return, you need to know the number of years the investment was held. In this case, it was held for six years. To find the annual return, you can use the formula:
Annual Return = ((1 + Total Return)^(1 / Number of Years)) - 1
Substituting the values from the question, the annual return is ((1 + 0.56)^(1 / 6)) - 1 ≈ 0.091 or 9.1%.

Therefore, the correct answer is Option 3: Total return is 124%, and annual return is 20.67%.