Question

2 1 point Consider an investor who made an investment in Berkshire Hathaway exactly 34 years ago. The investor paid $36.7 per share for the shares and just sold them for $74.8 per share. No dividends were paid over the investment period. What was the investor's annualized rate of return (EAR)? Enter your answer in decimal form out to four decimals. For example, you would enter 0.1050 (for 10.5%).

Answer 1

The investor's annualized rate of return (EAR) is approximately 0.0562 or 5.62%.

Step-by-step explanation:

To calculate the EAR, we need to compare the initial investment value with the final investment value. In this case, the investor paid $36.7 per share for Berkshire Hathaway shares and sold them for $74.8 per share after 34 years.

Using the formula for EAR, we divide the final value ($74.8) by the initial value ($36.7) and raise it to the power of 1 divided by the number of years (34). Subtracting 1 from this value gives us the annualized rate of return.

Applying the calculations:

EAR = ($74.8 / $36.7) ^ (1 / 34) - 1

≈ 2.0403 ^ 0.0294 - 1

≈ 0.0562

Therefore, the investor achieved an annualized rate of return of approximately 5.62%. This indicates the average annual growth rate of the investment over the 34-year period.