Answer:
To calculate the average annual percentage gain, we need to use the formula:
Average annual percentage gain = ((Ending value / Beginning value)^(1/n) - 1) x 100%
where:
- Ending value = the value of the investment at the end of the period
- Beginning value = the value of the investment at the beginning of the period
- n = the number of years
In this case, the beginning value of the stocks is not given, so we cannot calculate the exact average annual percentage gain. We only know the profit and the ending value. However, we can make an estimate assuming that the profit is equal to the gain, i.e., there were no transaction costs or other fees.
If the profit was $3,250 and the ending value was $10,500, then the beginning value was:
Beginning value = Ending value - Profit
Beginning value = $10,500 - $3,250
Beginning value = $7,250
The number of years is given as 4.
Using the formula above, we can estimate the average annual percentage gain as:
((10,500 / 7,250)^(1/4) - 1) x 100%
= (1.1267^(0.25) - 1) x 100%
= (1.0266 - 1) x 100%
= 0.0266 x 100%
= 2.66%
Therefore, the estimated average annual percentage gain is 2.66%.
Explanation: