You bought a stock three years ago and paid $45 per share. You collected a $2 dividend per share each year you held the stock and then you sold the stock for $47 per share. What was your annual compound rate of return?

Question

Quizplus · Accepted Answer

The total return includes the dividends collected over three years ($2 per year for 3 years = $6) plus the capital gain ($47 - $45 = $2), totaling $8. The initial investment was $45, so the total return is $8 on a $45 investment over 3 years. Using the formula for compound annual growth rate (CAGR), we find the rate that makes the initial amount grow to the final amount over the period, which is approximately 5.84 percent.

You Bought a Stock Three Years Ago and Paid $45