Question

Compute the total and annual returns on the following investment. Twenty years after purchasing shares in a mutual fund for ​$6300​, the shares are sold for ​$11,100. What is the total return? What is the annual return?

Answer 1

Answer:

• 76.2% total return
• 2.87% annual return

Step-by-step explanation:

The total return is the rate of increase over the whole period:

  % change = (11100/6300 -1) × 100% = 76.2%

The annual return is the rate of return that gives this growth over 20 years:

  (1 +r)^20 = 1 +76.2%

  r = 1.762^(1/20) -1 ≈ 2.87%

The total return is about 76.2%; the annual return is about 2.87%.