Eileen just sold a stock and realized a 6.25 percent return for a 7-month holding period. What was her annualized rate of return?
A)9.98%
B)10.95%
C)12.78%
D)15.29%
E)17.20%

Question

Quizplus · Accepted Answer

To annualize the return, you use the formula for annualizing returns over periods shorter than a year: $ \text{Annualized Return} = \left(1 + \text{Period Return}\right)^{\frac{12}{\text{Period Length in Months}}} - 1 $. Here, the period return is 6.25% or 0.0625, and the period length is 7 months. Plugging these values into the formula gives: $ \left(1 + 0.0625\right)^{\frac{12}{7}} - 1 \approx 0.1095 $ or 10.95%.

Eileen Just Sold a Stock and Realized a 6