Question

William owns 1 share of Park stock. He purchased the stock three years ago for $17.50. The stock is currently trading for $40 per share. The stock has paid the following dividends over the past three years. o Year 1: $1.00. o Year 2: $2.00. o Year 3: $3.00. What is the compounded rate of return (IRR) that William has earned on this investment

Answer 1

The compounded rate of return (IRR) that William has earned on this investment is approximately 2.88%.

Step-by-step explanation:

To calculate the compounded rate of return (IRR) on the investment, we need to consider the initial cost of the stock, the dividends received, and the current value of the stock. Here's how we can calculate it:

1. First, calculate the total dividends received over the three years: $1.00 + $2.00 + $3.00 = $6.00
2. Next, calculate the capital gain by subtracting the initial cost of the stock from its current value: $40 - $17.50 = $22.50
3. Now, divide the total gain by the initial cost of the stock and express it as a percentage to find the compounded rate of return: ($22.50 + $6.00) / $17.50 = 2.88

Therefore, William has earned an approximate compounded rate of return (IRR) of 2.88% on this investment.

Answer 2

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