Question

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Question 15
4 pts
• If you purchased 40 shares of a Vanguard mutual fund at $105 a share two years
ago and the Vanguard mutual fund is currently at $200 a share. Please answer
the four questions below that relate to this investment scenario-
1. What was the total cost of purchasing the 40 shares two years ago?
2. What are the 40 shares of the Vanguard mutual fund currently at?
3. If you sold the 40 shares of the Vanguard mutual fund today - what would
be your profit or loss?
4. What would be your rate of return for selling the 40 shares today?

Answer 1

1. $4,200

2. $8,000

3. $3,800 profit

4. 90.48%

Explanation:

QUESTION 1:

The cost of one share two years ago was $105. Since you bought 40 shares, you would have to multiply that price by 40:

`$105*40=4,200`

That means the total cost of purchasing 40 shares two years ago was $4,200.

QUESTION 2:

One share currently costs $200. Just like with problem 1, since they're asking about all 40 shares, you need to multiply that price by 40.

`200*40=8,000`

That means that 40 shares is currently valued at $8,000.

QUESTION 3:

Profit or loss is calculated by subtracting the final value by the initial value. In this case, subtracting the current price by the price you originally bought the shares for.

`8,000-4,200=3,800`

Because it's a positive number, you know that you've made a profit of $3,800 off of 40 shares.

QUESTION 4:

Rate of return is calculated by dividing the profit (or loss) by the original cost:

`3,800/4,200=0.9048`

Of course, since rate of return is expressed in a percentage, you would need to multiply 0.9048 by 100 and tack a percent sign onto the end, giving you 90.48%. (I rounded the number to the nearest hundredth.)

Answer 2

1. $4200

2. $8000

3. Profit $3800

4. 90.48% (2 d.p.)

Explanation:

40 x 105 = 4200

40 x 200 = 8000

8000 - 4200 = 3800

Rate of Return = (Final Value - Initial Value) divided by Initial Value

(8000-4200) divided by 4200 = 19/21 or 0.9047619048

= 90.48%