You purchased 100 shares of stock for $5 per share

Finance Oct 08, 2020

You purchased 100 shares of stock for $5 per share. After holding the stock for 9 years and not receiving any dividends, you sell the stock for $40 per share. What are the holding period and annual return on this investment?

Expert Solution

Computation of the holding period return:-

Holding period return = (Ending value - Beginning value) / Beginning value

= ((100 * $40) - (100 * $5)) / (100 * $5)

= ($4,000 - $500) / $500

= $3,500 / 500

= 700%

Computation of the annual return:-

Annual return = (Ending value / Beginning value) ^ (1/n)-1

= ($4,000 / $500) ^ (1/9) -1

= 1.2599 - 1

= 25.99%

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