Question

Use the commission schedule from Company A shown in the table to find the annual rate of interest earned on the investment.​ (Note: commissions are rounded to the nearest​cent.)

Principal​ (Value of​ Stock)	Commission
Under​ $3,000	​$25+​1.8% of principal
​$3,000 to​ $10,000	​$37+​1.4% of principal
Over​ $10,000	​$107+​0.7% of principal

An investor purchases 270 shares at $10.86 a​ share, holds the stock for 32 ​weeks, and then sells the stock for $18.33 a share.

what is the annual rate? %

Answer 1

Particulars	Amount
Share value (270 shares * 10.86 per share)	2932.20
Add: Commission paid 25+ (0.018 * 2932.20)	77.78
Purchase cost	3009.98
Particulars	Amount
Sales proceeds (270 shares * 18.33 per share)	4949.10
Less: Commission paid 37+ (0.014 * 4949.10)	106.29
Net sale proceeds	4842.81

Holding period return

=     Net sale proceeds – purchase cost

                  Purchase cost

=   4842.81 – 3009.98

                 3009.98

= 183283

    3009.98

= 0.608919

Annualized holding period return

= (0.608919 * 52)/ 32

= 0.989493

Annual Rate = 98.9493%