Question

In: Finance

You buy some shares of MJK at $500 per share. 7 years later, you sell these...

You buy some shares of MJK at $500 per share. 7 years later, you sell these shares for $645.50 per share. You received total of $100 dividends during this investment period. What is your Effective annual rate (EAR)?

A.

55.25%
B.

12.47%
C.

5.87%
D.

45.91%

Solutions

Expert Solution

The total holding period return is = (645.5 + 100 - 500)/500 = 49.1%

This return is over a 7 year horizon. Hence, the effective annual return can be calculated as

(1 + R)^7 = 1.491

R = 5.872%

Option C is correct.

jeff jeffy answered 3 years ago
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