Question

Seven years after paying $7,275 for shares in a new company, you sell the shares for $11,030. What is the correct measure of the total return and the annual return?

A) Total return: 54.20%, Annual return: 6.43%
B) Total return: 51.62%, Annual return: 6.13%
C) Total return: 41.29%, Annual return: 4.90%
D) Total return: 49.03%, Annual return: 5.82%

Answer 1

The total return is 51.7% and the annual return is 6.3%.

Step-by-step explanation:

To calculate the total return, we subtract the initial investment from the final sale amount and divide it by the initial investment. In this case, the total return is ($11,030 - $7,275) / $7,275 = 0.517 or 51.7%.

To calculate the annual return, we use the formula: annual return = (1 + total return)^(1/n) - 1, where n is the number of years. Here, the annual return would be (1 + 0.517)^(1/7) - 1 = 0.063 or 6.3%.

Therefore, the correct measures are:
Total return: 51.7%
Annual return: 6.3%

A calculation is a deliberate mathematical process that transforms one or more inputs into one or more outputs or results. The term is used in a variety of senses, from the very definite arithmetical calculation of using an algorithm, to the vague heuristics of calculating a strategy in a competition, or calculating the chance of a successful relationship between two people.

Therefore, the correct answer is B) Total return: 51.62%, Annual return: 6.13%