Question

Mr. Dow bought 100 shares of stock at $19 per share. Three years later, he sold the stock for $25 per share. What is his annual rate of return? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Answer 1

Mr. Dow purchase price of Stocks (P0) = $19*100

=$1900

3 years later, the stocks are sold for (P1) =$25*100

=$2500

- Holding Period Return of Stock (HPR) = (P1 - P0)/P0

=($2500-$1900)/$1900

= 31.5789%

Calculating Annual rate of Return:-

Annual Rate of Return(ARR) = (1+HPR)^(1/n) -1

=(1+ 0.315789)^(1/3) - 1

= 9.60%

So, Annual rate of Return is 9.60%

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