You purchased a stock eight months ago for $36 a share. Today, you sold that stock for $41.50 a share. The stock pays no dividends. What was your annualized rate of return?

Question

Quizplus · Accepted Answer

To calculate annualized rate of return, we need to use the formula: 
[(Selling Price/Purchase Price)^(1/n)] - 1 
where n is the number of years or fraction of years between purchase and sale.

Here, n = 8/12 = 2/3 (since 8 months is 2/3 of a year) 
Selling Price = $41.50 
Purchase Price = $36

[(41.50/36)^(1/(2/3))] - 1 = 0.2377 or 23.77%

Therefore, the annualized rate of return is 23.77%.

You Purchased a Stock Eight Months Ago for $36 a Share