Question

An investor bought a stock ten years ago for $20 and sold it today for $35. What is the annual rate of growth (rate of return) on the investment?

Answer 1

Annual rate of Growth (CAGR) is the return of an investment provided in a period of time (such as 5 years, 10 years etc) expressed in as time weighted annual percentage. we can calculate the annual rate of growth with following formula -

where,

n = number of years

end value = sale price

Beginning value = purchase price

Lets calculate ,

Thus, The Annual growth rate of above investment is 5.76%

We can check the result in following manner -

Initial cost = $ 20

Annual rate = 5.76%

Time = 10 years

Thus, Future value = 20*(1.0576)^10

= 20*1.75 = $ 35

Hope this will help, your feedback would highly appreciated.