Question

I invested $1,000 in Facebook seven years ago, today my investment worth $4,900. What is the real rate of return, the growth rate and the after-tax real rate of return of my investment given that the cumulative inflation rate is 10.28% over the course of seven years and the current tax rate is 10% ?

Answer 1

Annual average growth rate=((last value/First value)^(1/Time between 1st and last value)-1)*100

Annual Growth rate=((4900/1000)^(1/7)-1)*100

Annual Growth rate% = 25.49

Real return = ((1+nominal return)/(1+inflation rate)-1)*100

Real return=((1+0.2549)/(1+0.1028)-1)*100

Real return = 13.79

after tax Annual average growth rate=((last value*(1-tax rate)/First value)^(1/Time between 1st and last value)-1)*100

=((4410/1000)^(1/7)-1)*100

= 23.61

After tax Real return = ((1+nominal return)/(1+inflation rate)-1)*100

=((1+0.2361)/(1+0.1028)-1)*100

= 12.09