Question

April Wine bought 425 shares of stock at $5.50 per share. Four

years later, she sold the stock for $21 per share. What was her
annual growth rate (rate of return, ROR) for her capital? Use
Appendix B.

Answer 1

April Wine's annual growth rate (rate of return, ROR) for her capital is approximately 33.48%.

Step-by-step explanation:

April Wine's annual growth rate can be calculated using the formula for compound annual growth rate (CAGR), which is given by:

`\[ CAGR = \left( (Ending\,Value)/(Beginning\,Value) \right)^{(1)/(n)} - 1 \]`

In this case, the beginning value is the purchase price of the stock, which is
`\( $5.50 \)` per share, and the ending value is the selling price, which is
`\( $21 \)` per share. The time period is four years.

`\[ CAGR = \left( (21)/(5.50) \right)^{(1)/(4)} - 1 \]`

Calculating this expression gives us the annual growth rate of approximately
`\( 0.3348 \) or \( 33.48\% \).`This means that April Wine's capital grew at an average annual rate of 33.48% over the four-year period.

Understanding the annual growth rate is crucial for investors as it provides insight into the performance of an investment. In this case, April Wine experienced a substantial annual growth in the value of her stock, indicating a profitable investment over the four-year period.