Question

1. You purchased 1000 shares of stock for $25 a share. After holding the stock for 6 years and not receiving any dividends, you sell the stock for $42 per share. What are the holding period and annual return on this investment?

a) 9.2% ; 1.63%

b) 18% ; 2.87%

c) 68% ; 9.03%

d) 62% ; 7.66%

Answer 1

c) 68% ; 9.03%

Holding period return			=	(P1-P0)/P0		Where,
			=	(42-25)/25		P0	=	$          25
			=	68%		P1	=	$          42
Holding period return			=	((1+i)^n)-1		Where,
	0.68		=	((1+i)^6)-1		i	=	Annual return	=	?
	1.68		=	(1+i)^6		n	=	time	=	6
	1.68	^(1/6)	=	1+i
	1.090314		=	1+i
	0.090314		=	i
So,
Annual return is		9.03%