Question

One of the stocks in your portfolio is traded at $33.95

currently. You paid $16.7 9 years ago and have been holding the
stock ever since. What is the implied interest rate on the
stock?

Answer 1

The implied interest rate, or compound annual growth rate (CAGR), of a stock that increased in value from $16.7 to $33.95 over 9 years is approximately 7.94% per year.

Step-by-step explanation:

To calculate the implied interest rate or the compound annual growth rate (CAGR) for a stock that increased in value from $16.7 to $33.95 over 9 years, you can use the CAGR formula:

CAGR = (Ending Value/Beginning Value)^(1/Number of Years) - 1

In this scenario:

• Ending Value = $33.95
• Beginning Value = $16.7
• Number of Years = 9

Plugging these values into the formula gives us:

CAGR = ($33.95/$16.7)^(1/9) - 1

After performing the calculations:

CAGR = (2.03233532934)^(1/9) - 1 ≈ 0.0794 or 7.94%

The implied interest rate on the stock is therefore approximately 7.94% per year.