You owned a stock for 2 months and earned an annualized return of 13.28%. What was the rate of return for the 2-month period?
A) 2.10%
B) 1.12%
C) 2.59%
D) 1.71%
E) 2.87%

Question

Quizplus · Accepted Answer

The annualized return can be converted to a 2-month return by dividing the annual rate by 12 (to get a monthly rate) and then multiplying by 2, or more accurately, by taking the 12th root of 1 plus the annual rate, raising it to the power of 2 (for 2 months), and subtracting 1. The formula for converting an annualized return to a period return is: $(1 + annualized\ return)^{\frac{period\ length}{12}} - 1$. Plugging in the given annualized return: $(1 + 0.1328)^{\frac{2}{12}} - 1 = 0.0210$ or 2.10%.

You Owned a Stock for 2 Months and Earned an Annualized