Question

Holding period and annual (investment) returns. Baker Baseball Cards, Inc. originally purchased the rookie card of Hammerin' Hank Aaron for $25.00. After holding the card for 4 years, Baker Baseball Cards auctioned the card for $150.00. What are the holding period return, the simple annualized return and the compound annualized return on this investment? What is the holding period return of the baseball card? 500% (Round to two decimal places.) What is the simple annualized return on the baseball card? (83.33% (Round to two decimal places.) What is the compound annualized return on the baseball card? | % (Round to two decimal places.)

Answer 1

• Holding period return is the total return received from holding an asset or portfolio of assets over a period of time

Holding Period Return = (Sale Value / Investment - 1)*100

((150/25) -1)*100 = 500%

• Simple Annualised Rate of Return may be calculated as Holding period return / Period

i.e 500 / 4 = 125%

• Compound Annualised Rate of Return.

We use future value formula

FV= PV (1+R)^n

150 = 25 (1+R)^4

R = 56.51%