Question

You purchased 250 shares of General Motors stock at a price of $77.98 two years ago. You sold all stocks today for $88.67. During this period the stock paid dividends of $5.90 per share. What is your annualized holding period return (annual percentage rate)

Answer 1

Holding Period Return = [Selling Price-Purchase Price+Total Dividends]/Purchase Price = [88.67-77.98+5.9]/77.98 = 0.212747 = 21.2747%

NOTE: Annualized Holding Period Return is calculated UNDER 2 DIFFERENT ASSUMPTION.

Annualized Holding Period Return(assuming Average Annual Rate) = Holding Period Return/Holding Period = 0.212747/2 = 0.106373 = 10.6373%

Annualized Holding Period Return(assuming Compounded Annual Rate):

Holding Period Return = [(1+Annual Return)^Holding Period]-1

0.212747 = [(1+R)^2]-1

1.212747 = [(1+R)^2]

1.212747^1/2 = 1+R

1.101248-1 = R

Therefore, Annualized Return = 0.101248 = 10.1248%