Two years ago, Jim bought 100 shares of IBM stock at $50 per share, and just sold them for $65 per share after receiving dividends worth $3 per share over the two year holding period. Mary, bought 5 ounces of gold at $800 per ounce, three months ago, and just sold it for $1000 per ounce. Calculate each investor's HPR, APR, and EAR and comment on your findings.

Mary has good returns as related to Jim's returns.

Step-by-step explanation

Jim

The HPR = (Selling Price + Dividend - Purchase Price)/the purchase Price

When we substitute the values we shall have;

= (65 +3 - 50) / 50 

= 18 / 50 

= 36%

The APR = HPR / total years 

= 36%/2

= 18%

EAR = (1 + 36%)^1/2 - 1 

= 16.62%

Therefore:

Jim's HPR = 36%

APR = 18%

EAR = 16.62%

Mary

HPR = (Selling Price - the purchase Price)/the purchase Price 

= (1000 - 800) / 800 

= 200 / 800 

= 25%

APR = 25%/ (1/4)

= 100%

EAR = (1 + 25%)⁴ - 1 

= 144.14%

Then Mary's HPR = 100%

Mary's APR = 100%

Mary's EAR = 144.14%

COMMENTS:

From the observe Mary has higher APR and EAR than Jim's APR and EAR.

Mary's HPR is 25% from the holding period of 3 months and that of Jim is HPR of 36% for two years.

Mary has good returns as related to Jim's returns.

Nevertheless, Mary's return appears to be exceptional and it is unrealistic in normal situations.