Question

Microsoft stock price peaked at 6118% of its IPO price more than 13 years after the IPO† Suppose that $15,000 invested in Microsoft at its IPO price had been worth $900,000 (6000% of the IPO price) after exactly 13 years. What interest rate, compounded annually, does this represent?

Answer 1

Answer:

37% compounded annually

Explanation:

To find the answer we need to follow this formula:

$P = I (1+ r)^{n}$

Where:

• P = Present value of the stock
• I = Initial value of the stock
• r = Interest rate
• n = number of compounding periods

Now we plug the amounts into the formula:

900,000 = 150,000 (1 + r)^13

900,000 / 150,000 = (1 + r)^13

60 = (1 + r)^13

Ln60 = 13 Ln(1 + r)

4.09 / 13 =  Ln(1 +r)

0.31 = Ln(1 + r)

e0.31 = Ln(1 + r)

1.37 = 1 + r

1.37 - 1 = r

0.7 = r

Thus, the annual interest rate is 37%