What is the accounting rate of return if a stock is purchased for $5,250 and sold for a gain of $375?

What is the accounting rate of return if a stock is purchased for $5,250 and sold for a gain of $375?

• A. 6.38%
• B. 7.14%
• C. 7.69%
• D. 9.30%

Answer: (B)

To calculate the accounting rate of return (ARR), you need to determine the return gained from an investment as a percentage of the initial investment cost. The formula for ARR is typically: \[ \text{ARR} = \left( \frac{\text{Average Annual Profit}}{\text{Initial Investment}} \right) \times 100 \] In this scenario, the stock was purchased for $5,250 and sold for a gain of $375. To find the total amount received from the sale, you would add the gain to the purchase price: \[ \text{Total Sale Amount} = \text{Purchase Price} + \text{Gain} = 5,250 + 375 = 5,625 \] Now, the profit in this case is just the gain sold for, which is $375. So, you measure this profit against the initial investment of $5,250 using the ARR formula: \[ \text{ARR} = \left( \frac{375}{5,250} \right) \times 100 \] Conducting the division gives: \[ \frac{375}{5,250} = 0.0714285714 \] Multiplying by 100 results in approximately

To calculate the accounting rate of return (ARR), you need to determine the return gained from an investment as a percentage of the initial investment cost. The formula for ARR is typically:

[ \text{ARR} = \left( \frac{\text{Average Annual Profit}}{\text{Initial Investment}} \right) \times 100 ]

In this scenario, the stock was purchased for $5,250 and sold for a gain of $375. To find the total amount received from the sale, you would add the gain to the purchase price:

[ \text{Total Sale Amount} = \text{Purchase Price} + \text{Gain} = 5,250 + 375 = 5,625 ]

Now, the profit in this case is just the gain sold for, which is $375. So, you measure this profit against the initial investment of $5,250 using the ARR formula:

[ \text{ARR} = \left( \frac{375}{5,250} \right) \times 100 ]

Conducting the division gives:

[ \frac{375}{5,250} = 0.0714285714 ]

Multiplying by 100 results in approximately