Question

Holding period and annual​ (investment) returns. Baker Baseball​ Cards, Inc. originally purchased the rookie card of​ Hammerin' Hank Aaron for $ 24.00. After holding the card for 5 ​years, Baker Baseball Cards auctioned the card for $ 168.00. What are the holding period​ return, the simple annualized return and the compound annualized return on this​ investment? What is the holding period return of the baseball​ card? nothing​% ​(Round to two decimal​ places.) What is the simple annualized return on the baseball​ card? nothing​% ​(Round to two decimal​ places.) What is the compound annualized return on the baseball​ card? nothing​% ​(Round to two decimal​ places.)

Answer 1

Solution and Explanation:

We see that holding period return = (selling price/purchase price-1) = $168 / 24-1=600 \%$

Case 1: the simple return is calculated using the compounding

The Simple annual return is = (Future Value/Present Value ) ^ (1/t) -1  

$=(168 / 24)^{\wedge}(1 / 5)-1=47.5773 \%$

= 47.58 % (rounded to 2 decimal places)

Case 2: the simple return is calculated using the average

The Simple annual return = Holding period return divide by t = 600% divide by 5 = 120%