# Find the Annual Rate

• Aug 12th 2008, 05:30 AM
magentarita
Find the Annual Rate
Tracy is thinking about buying 100 shares of a stock selling for $15 per share. The stock pays no dividends. Her broker says that the stock will be worth$20 per share in 2 years. What is the annual rate of return on this investment?
• Aug 12th 2008, 05:46 AM
CaptainBlack
Quote:

Originally Posted by magentarita
Tracy is thinking about buying 100 shares of a stock selling for $15 per share. The stock pays no dividends. Her broker says that the stock will be worth$20 per share in 2 years. What is the annual rate of return on this investment?

Assume that you instead invest the money ($15000) at an annual rate r, then after 2 years this must be worth$20000 to be an equivalent investment, and r is the annual rate of return on the investment.

RonL
• Aug 12th 2008, 09:10 PM
magentarita
Can you..
Can you break it down another way?
• Aug 13th 2008, 02:04 AM
CaptainBlack
Quote:

Originally Posted by Air
She buy's $\displaystyle 100$ shares at $$\displaystyle 15 so in total she pays: \displaystyle 100 \times$$\displaystyle 15 = $$$\displaystyle 1500 In \displaystyle 2 years, the value is$$\displaystyle 20$ so in total, her share value is:

$\displaystyle 100 \times$ $$\displaystyle 20 =$$\displaystyle 2000$So, over two years, she has had a profit as the stocks are worth more than she paid so she has earnt: $$\displaystyle 2000 -$$\displaystyle 1500 =$ $$\displaystyle 500 So, per annum (\displaystyle 1 year) this would be:$$\displaystyle 500 \div 2 = ...\$

An annual interest rate will result in compounding annualy so you will not earn the same interest in each year.

RonL
• Aug 13th 2008, 04:26 AM
magentarita
Thanks...
Thank you so much. I got it now.