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You invested $1000 in a stock portfolio 3 years ago.  You contributed another $1000 1 year ago.  The...

  1. You invested $1000 in a stock portfolio 3 years ago.  You contributed another $1000 1 year ago.  The current value of the portfolio is $4000.  What is the rate of return (internal rate of return) of this investment?

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Expert Solution

Here,

Current value = 4000

Investment 3 years ago = 1000

Investment 1 year ago = 1000

Total investment = 2000

We do not have any information about the dividends gained on this stock, so lets assume it to be 0

Difference between the current value and investment is the profit = 4000 - 2000 = 2000

Total rate of return = Profit / total investment = 2000/2000 = 1

Adding 1 to TRR = 2

Since the investment was for 4 years, = 1/4 = 0.25

Annualized rate of return = 2^0.25 - 1 = 0.1892 = 18.92%

jeff jeffy answered 2 years ago
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