Question

On its first day of trading, Twitter closed at $41.57 per share. Two years later and the price was $26.85, what was the annual return on the stock if returns are compounded daily?

A. 21.86%.
B. -21.85%.
C. -5.99%.
D. -19.63%.

Answer 1

B. -21.85%.

Step-by-step explanation:

Calculation for the annual return on the stock

First step is to calculate the Number of periods

Number of periods = 2 * 365 days in a year

Number of periods= 730

Second Step is to calculate the Daily return using this formula

Daily return = (Future value / initial value)^1/n - 1

Let plug in the formula

Daily return = (26.85 / 41.57)^1/730 - 1

Daily return = (0.645898)^1/730 - 1

Daily return = 0.999401 - 1

Daily return = -0.00059861*100

Daily return = -0.059861%

Last step is to calculate annual return

Using this formula

Annual return=Daily return/ Numbers of days in a year

Annual return = -0.059861% * 365

Annual return = -21.85%

Therefore the annual return on the stock if returns are compounded daily will be 21.85%