Billy owns one share of Disney stock. He purchased the share 3 years ago for $15. Disney stock is currently trading for $30 per share. The stock has paid the following dividends over the past three years: year 1, $1.00; year 2, $2.00; year 3, $3.00. What is the compounded rate of return (IRR) that Billy has earned on his investment

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Business

Haleigh Walter

28 January, 04:14

Billy owns one share of Disney stock. He purchased the share 3 years ago for $15. Disney stock is currently trading for $30 per share. The stock has paid the following dividends over the past three years: year 1, $1.00; year 2, $2.00; year 3, $3.00. What is the compounded rate of return (IRR) that Billy has earned on his investment

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Jonas Duarte · Answer 1

35.8%

Explanation:

purchase price 3 years ago $15, so CF₀ = - 15

CF₁ = $1

CF₂ = $2

CF₃ = $3 + $30 = $33

using an excel spreadsheet (or you can also a financial calculator), you must determine the internal rate of return (IRR) = 35.8%

the IRR is the interest rate where NPV = 0, or the future cash flows equal the investment amount