11
Return Calculations
You invest $100 in a stock at the end of the day on the
last market day of the year in 2010. On the last
market day in December 2011, your investment is worth $105,
and you buy $100 more to make your total
investment value equal $205. On the last market day in
December 2012, your investment is worth $203.
What is your annualized rate of return? Please include
compounding in your calculation (use geometric
means).
a. 1.97%
b. 3.96%
c. 8.11%
d. 16.88%
_ ANSWER: period 1: 105/100 - 1=5%,
period 2: 203/205 - 1= -0.98%,
Annualized:sqrt[(1+0:05)(1-0.98)] - 1 = 1.97% (A)