Question

Eight years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900. Today he sold all 10 shares for $4,500. What was his average annual rate of return on this investment, before tax

Answer 1

Answer:

Average annual rate of return = 22.3%

Explanation:

The average annual rate of return can be computed using the Future value of a a single sum

FV = PV × (1+r)^n

FV = value of investment, PV = cost of investment, r- rate of return, n- number of years

900×(1+r)^8 = 4500

divide both sides by 900

1+r = 4,500/900

1+r =  (4.500/900)^(1/8)

r =  (4.500/900)^(-10) - 1

r= 0.2228

r =0.2228  × 100

Average annual rate of return = 22.3%