Question

Compute the total and annual return on the following investment.

Two years after paying ​$3400 for shares in a startup​ company, you sell the shares for $2100 ​(at a​ loss).

The total return is ___%.

​(Do not round until the final answer. Then round to the nearest tenth as​ needed.)

The annual return is ___%.

​(Do not round until the final answer. Then round to the nearest tenth as​ needed.)

Answer 1

SOLUTION:

From given data,

Compute the total and annual return on the following investment.Two years after paying ​$3400 for shares in a startup​ company, you sell the shares for $2100 ​(at a​ loss).

Let us consider,

P = $ 3400

A = $ 2100

Y = 2

The total return is

The total return is = (A - P) / P

The total return is = (2100 - 3400) / 3400

The total return is = -1300 / 3400

The total return is = -0.3823

The total return is = -38.23 %

The annual return is

Annual return = (A / P)^(1/Y) - 1

Annual return = (2100 / 3400)^(1/2) - 1

Annual return = (0.617647)^(1/2)​​​​​​​ - 1

Annual return = 0.7859052 - 1

Annual return = -0.2140

Annual return = - 21.40 %