Question

Hi!
I am not quite sure the formula I am supposed to use for this or where each piece of information belongs. How would I solve this question?

Jeff Krause purchased 1,000 shares of a speculative stock in January for $1.89 per share. Six months​ later, he sold them for $9.26 per share. He uses an online broker that charges him $10.00 per trade. What was​ Jeff's annualized HPR on this​ investment?

Thanks!

Answer 1

Based on the price he purchased the stock and the amount he sold them for, Jeff's annualized HPR on the investment is 2,395%.

How much is Jeff's annualized HPR?

First find the net profit:

= (1,000 x 9.26) - (1,000 x 1.89) - 10

= $7,360

The HPR is:

= 7,360 / (1,000 x 1.89)

= 389.4%

The annualized HPR is:

= (1 + 389.4%)² - 1

= 2,395%

Note: Taken to the power of 2 because there are two six-month periods in a year.

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