Question

You purchased a stock eight months ago for $36 a share. Today, you sold that stock for $41.50 a share. The stock pays no dividends. What was your annualized rate of return?

Answer 1

Capital Gain on stock = Selling price of stock - Purchase price

= $ 41.5 - $ 36

= $ 5.5

% rate of return = (Capital gain on stock / Purchase price of stock) * 100

= ( $ 5.5 / $ 36 ) * 100

=0.1527 * 100 = 15.27%

Now, the holding period was 8 months. This implies that 15.27% is rate of return for 8 months.

Hence, annualized rate of return = ( 15.27 / 8 ) * 12

= 1.90875 * 12

= 22.905 %

Step-by-step explanation:

Refer to the answer.

Answer 2

23.77%

Step-by-step explanation:

Given that,

Purchased a stock eight months ago for $36 a share

Today, you sold that stock for $41.50 a share

Return for 8 months:

= (selling price today ÷ Purchasing price)

= ($41.50 ÷ $36) - 1

= 15.28%

Annualized rate of return:

= (1 + Return for 8 months) ^(12 ÷ 8) - 1

= (1 + 15.28%)^(12 ÷ 8) - 1

= 23.77%

Hence, the annualized rate of return is 23.77%.