Question

What are the holding period and the annualized compounded returns if you buy a stock for $35 and sell it for $60 after fourteen years? Use Appendix A to answer the questions. Round your answers to the nearest whole number. Holding period return: % Annualized compounded return: %

Answer 1

The holding period return is 71% and the annualized compounded return is 9%.

Step-by-step explanation:

The holding period return measures the return on an investment over a specific period of time. It is calculated by taking the difference between the ending value and the beginning value of the investment, divided by the beginning value, and converting it to a percentage. In this case, the holding period return would be calculated as follows:

Holding period return = ((ending value - beginning value) / beginning value) x 100%

Holding period return = ((60 - 35) / 35) x 100%

= (25 / 35) x 100%

= 71% (rounded to the nearest whole number)

The annualized compounded return measures the average annual return on an investment, taking into account the compounding effect. It is calculated by using the following formula:

Annualized compounded return = ((ending value / beginning value) ^ (1 / holding period)) - 1

For the given investment, the annualized compounded return would be:

Annualized compounded return = ((60 / 35) ^ (1 / 14)) - 1

= (1.714 ^ 0.0714) - 1

= 9% (rounded to the nearest whole number)