Suppose that you bought a stock 6 years ago at $12 .
The stock’s price at the end of each year is shown
here.
Year 1 2 3 4 5 6
Price 10 14 15 22 30 25
a) Compute the rate of return.
To compute the rate of return, we need to calculate the percentage change in the price of the stock over the given period.
The formula to calculate the rate of return is:
Rate of Return = ((Ending Price - Starting Price) / Starting Price) * 100
In this case, the starting price is $12, and the ending price after 6 years is $25.
Let's plug the values into the formula:
Rate of Return = (($25 - $12) / $12) * 100
Rate of Return = ($13 / $12) * 100
Rate of Return = 1.083 * 100
Rate of Return = 108.33%
Therefore, the rate of return for the stock over the 6-year period is 108.33%.