Question

You 100 shares of stock today for $30 per share that he purchased for $20 six years ago. Determine the average annual rate of return on Shawn's investment, assuming the stock paid no dividends.

a. 25%
b. 8.33%
c. 150%
d. 7%

Answer 1

d. 7%

Step-by-step explanation:

Calculation to Determine the average annual rate of return on Shawn's investment

Using this formula

A=P(1+r/100)^n

where,

A=future value

P=present value

r=rate of interest

n=time period.

Let plug in the formula

30=20(1+r/100)^6

(30/20)^(1/6)=1+r/100

Hence,

1+r/100=1.0699(Approximate ly)

r=(1.0699-1)*100

r=0.0699*100

r=7% Approximately

Therefore the average annual rate of return on Shawn's investment is 7%