Find the Annual Rate

• Aug 12th 2008, 06:30 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, 06:46 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, 10:10 PM
magentarita
Can you..
Can you break it down another way?
• Aug 13th 2008, 03:04 AM
CaptainBlack
Quote:

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

$100 \times$ $$20 =$$ $2000$

So, over two years, she has had a profit as the stocks are worth more than she paid so she has earnt:

$$2000 -$$ $1500 =$ $$500$ So, per annum ( $1$ year) this would be:$ $500 \div 2 = ...$

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

RonL
• Aug 13th 2008, 05:26 AM
magentarita
Thanks...
Thank you so much. I got it now.