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I have an asset that I purchased at $440K. 5 years later, I sell this asset at $725K.

How do I compute the annual percentage yield that I have been getting over the past 5 years from this asset?

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Were there any dividends or payments given by the asset? By yield do you mean merely your annualized rate of return? –  JB King Jun 28 at 7:49
    
Nope. No dividends. Just what I paid in for and what I got out with. –  Calvin Cheng Jun 28 at 7:56

2 Answers 2

up vote 5 down vote accepted

Applying some simple Math:

$725,000/$440,000 = 1.6477272727272....

So, your cumulative return is 64.8% if I round to 3 digits.

Now, if I take the 5th root of 1.648, I get approximately 1.1050742047085970060712045917364

So, your annualized rate of return is 10.5%.

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1  
Double rounding? –  Chris Degnen Jun 28 at 12:11
    
@ChrisDegnen - I thought to comment on this as well. I've seen students using log tables that only have 2 significant digits and result in calculations concluding that 2^5 = 30. I tell them to round only the final result, not interim steps. –  JoeTaxpayer Jun 28 at 14:28
    
@JoeTaxpayer: especially since the unrounded intermediate result is just sitting there in your calculator, waiting to be 5th rooted. It's actually more work to round it... –  User58220 Jun 28 at 15:43

A1 = A0 + rA0

A2 = A0 + rA0 + r(A0 + rA0) = A0 + 2rA0 + r^2A0 = A0(1 + r)^2

At = A0(1 + r)^t

r = (At/A0)^1/t - 1

r = (725/440)^1/5 - 1 = 10.5%

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Is someone out there allergic to simple algebra? –  mistermarko Jun 28 at 19:30
    
Maybe if you put in some explanation it would help. –  soakley Jun 29 at 21:03

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