Question

Unit 4 What is the rate of return when 20 shares of Stock A, purchased for $20/share, are sold for $490? The commission on the sale is $6. Rate of Return = [?] % Give your answer as a percent rounded to the nearest tenth.

Answer 1

EXPLANATION

Share cost = $20/share

Number of shares = 20

Sale Price = $490

Commision = $6

The relationship is given as follows:

Total Earnings:

Return = Sale price - Comission - Share cost* Number of shares

Replacing terms:

Return = 490 - 6 - 20*20

Simplifying:

Return = 84

Dividing Return by number of shares:

84/20 = 4.2 return/share

But we need it in percentage form, so applying the following formula we can get it:

Rate of Return= [(Current Value - Original Value)/Original Value]*100

Original Value = $20

Current Value = $20/share + $4.2/share = $24.2/share

Replacing in the formula:

Rate of Return= [(24.2 - 20)/20]*100

Simplifying:

Rate of Return= 21%

So, the rate of return is 21%.