JT purchases 1,000 shares of stock at $2.48 per share in January 2006. He sells the 1,000 shares in January 2010 for $5.50 per share. What is his internal rate of return?
A) 22.03%
B) 2.03%
C) 3.22%
D) 2.33%

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) can be calculated using the formula for the annualized return: $$IRR = \left( \frac{Final Value}{Initial Value} \right)^{\frac{1}{n}} - 1$$ where $n$ is the number of years. Plugging in the given values: $$IRR = \left( \frac{5500}{2480} \right)^{\frac{1}{4}} - 1 \approx 0.2203$$ or 22.03%.

JT Purchases 1,000 Shares of Stock at $2