The prices for IMB over the last 3 years are given below

Finance Dec 22, 2020

The prices for IMB over the last 3 years are given below. Assuming no dividends were paid, what was the 3- year holding period return? Given the following information: Year 1 return = 10%, Year 2 return = 15%, Year 3 return = 12%. Select one: a. 41.7% b. 13.9% c. 15.8% d. 12.3%

Expert Solution

We will get to the answer in a methodical manner

Lets assume we started with a capital of $100

Returns at end of year 1 = Initial investment * rate of return

Returns at end of year 1 = $100 * ( 1+ 10%) == $110

Returns at end of year 2 = $110 * ( 1+ 15%) == $126.5

Returns at end of year 3 = $126.5 * ( 1+ 12%) == $141.7

Hence 3 year holding period returns

= Amount at end of year 3/ initial amount -1

= 141.7/100 - 1

=41.7%

hence correct answer is option 1: 41.7%

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