What would be the annual compound return on a stock purchased at $20 per share, held for 5 years, and sold for $32.22? Ignore brokerage commissions and tax implications and assume the stock paid no dividends during the holding period. Round to the nearest whole percent if necessary.
A) 3%
B) 10%
C) 15%
D) 16%

Question

Quizplus · Accepted Answer

The annual compound return can be calculated using the formula for compound annual growth rate (CAGR): $$CAGR = \left(\frac{FV}{PV}\right)^{\frac{1}{n}} - 1$$ where $FV$ is the final value ($32.22), $PV$ is the initial value ($20), and $n$ is the number of years (5). Plugging in the values: $$CAGR = \left(\frac{32.22}{20}\right)^{\frac{1}{5}} - 1 \approx 0.10$$ or 10% when rounded to the nearest whole percent.

What Would Be the Annual Compound Return on a Stock