[Quiz] If you bought 100 shares of BAC in 1986, what is annual rate?

J

jk90029

Dear-

The following link shows the result of 30-year investment of a major bank BAC.

http://www.investopedia.com/article...ter-bank-americas-ipo-bac.asp?partner=YahooSA

Suppose you bought 100 shares of BAC at $6.84 in 1986 IPO and current price is roughly $14.0.

However there were two-time splits and lots of dividend, which are compounded (re-invested) to $21767 from $684.

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1) What is the annual compounding rate for the entire 30 years?
2) What is the outperformance of BAC, over the index such as SnP500 for the 30 years?
 
jk90029 said:
Dear-

The following link shows the result of 30-year investment of a major bank BAC.

http://www.investopedia.com/article...ter-bank-americas-ipo-bac.asp?partner=YahooSA

Suppose you bought 100 shares of BAC at $6.84 in 1986 IPO and current price is roughly $14.0.

However there were two-time splits and lots of dividend, which are compounded (re-invested) to $21767 from $684.

******************************

1) What is the annual compounding rate for the entire 30 years?
2) What is the outperformance of BAC, over the index such as SnP500 for the 30 years?
More...

according to bbg: 4% annual return on price (approx. 200% gross return), 7% annual return when accounting for dividends (approx. 700% gross return).

SPX (as defined by the vanguard S&P500 fund) earned about 7% annual return (700% gross), about 9% when you factor in dividends (900-1400% based on how you reinvested the divs).
 
When using adjusted prices of $2.79 at IPO and $13.60 now, then the answer to part 1 of your question is this:
387.455% profit in 30 years, and that makes an annual profit of 5.422%.

And the answer to the 2nd part of the question is:

S&P on BAC's IPO on May 29, 1986 was: 247.98, today it is at 2020.
So, then 714.58% profit in 30 years, and that makes 7.241% annually.

In 30 years BAC underperformed by 327.13% compared to the S&P500 index.
BAC underperformed by 1.82% per year compared to the S&P500 index.
Meaning that investing into the index would have been much better than investing into BAC...


The adjusted prices one can get here http://finance.yahoo.com/q/hp?s=BAC&a=04&b=29&c=1986&d=05&e=14&f=1986&g=d
 
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Covertibility said:
How about Washington Mutual? Or Fannie Mae and Freddie Mac - weren't those 2 rock solid?
More...
Yes, they were... but then in 2007/2008 came the subprime loan banksters...
FannieMae.png


FreddiMac.png
 
newwurldmn said:
according to bbg: 4% annual return on price (approx. 200% gross return), 7% annual return when accounting for dividends (approx. 700% gross return).

SPX (as defined by the vanguard S&P500 fund) earned about 7% annual return (700% gross), about 9% when you factor in dividends (900-1400% based on how you reinvested the divs).
More...
Good question; of course if you needed to sell, or a client wanted his money back you may be forced to sell @ a few bucks of below $5. So your math sounds right, but its a lot, lot more risky than SPY-S&P 500.Another problem is even if they[BAC] did everything right,LOL; that big bank sector[with Citigroup] tends to downtrend[10 year downtrend] ..... Thanks; good points.
 
botpro said:
When using adjusted prices of $2.79 at IPO and $13.60 now, then the answer to part 1 of your question is this:
387.455% profit in 30 years, and that makes an annual profit of 5.422%.

And the answer to the 2nd part of the question is:

S&P on BAC's IPO on May 29, 1986 was: 247.98, today it is at 2020.
So, then 714.58% profit in 30 years, and that makes 7.241% annually.

In 30 years BAC underperformed by 327.13% compared to the S&P500 index.
BAC underperformed by 1.82% per year compared to the S&P500 index.
Meaning that investing into the index would have been much better than investing into BAC...


The adjusted prices one can get here http://finance.yahoo.com/q/hp?s=BAC&a=04&b=29&c=1986&d=05&e=14&f=1986&g=d
More...

And here are the long-term charts of BAC and the S&P500 index:

BAC.png



SP500.png
 
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