what is your annualized return on this investment 665614

A “QWEST” for Returns

Suppose you buy some stock in Qwest (no, that’s not a typo, that’s how the company spells it) at a price of $8 per share. Four months later, you sell it for $8.40. No dividend is paid. What is your annualized return on this investment?

For the four month holding period, your return is:

Percentage return = (P_t+1 P_t ) / P_t = ($8.40 $8) / $8 = .05 = 5%

There are three four month periods in a year, so the annualized return is:

1 + EAR = (1 + holding period percentage return)^m = (1 + .05)³ = 1.1576 Subtracting the one, we get an annualized return of .1576, or 15.76 percent.