You purchased a stock eight months ago for $36 a share. Today, you sold that stock for $41.50 a share. The stock pays no dividends. What was your annualized rate of return?

23.77%

Explanation:

Given that,

Purchased a stock eight months ago for $36 a share

Today, you sold that stock for $41.50 a share

Return for 8 months:

= (selling price today : Purchasing price)

= ($41.50 : $36) - 1

= 15.28%

Annualized rate of return:

= (1 + Return for 8 months) ^ (12 : 8) - 1

= (1 + 15.28%) ^ (12 : 8) - 1

= 23.77%

Hence, the annualized rate of return is 23.77%.

Capital Gain on stock = Selling price of stock - Purchase price

= $ 41.5 - $ 36

= $ 5.5

% rate of return = (Capital gain on stock / Purchase price of stock) * 100

= ($ 5.5 / $ 36) * 100

=0.1527 * 100 = 15.27%

Now, the holding period was 8 months. This implies that 15.27% is rate of return for 8 months.

Hence, annualized rate of return = (15.27 / 8) * 12

= 1.90875 * 12

= 22.905 %

Explanation:

Refer to the answer.