Question

Two years ago, you purchased 100 shares of General Mills Corporation. Your purchase price was $59 a share, plus a total commission of $29 to purchase the stock. During the last two years, you have received the following dividend amounts: $1.60 per share for the first year and $1.71 per share the second year. Also, assume that at the end of two years, you sold your General Mills stock for $66 a share minus a total commission of $38 to sell the stock.

a) Calculate the total return for your General Mills investment when you sold the stock at the end of two years. (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

(b) Calculate the annualized holding period yield for your General Mills investment at the end of the two-year period. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Answer 1

(a) Total return = Dividend Received + Capital Gain on sale of shares - Commission paid

= [$ (1.60 + 1.71) * 100 shares] + [$ (66-59) * 100 shares] - $ 29 - $ 38

= $331 + $700 - $29 - $38

= $ 964

(b) Annualized holding period yield = (Total return / Original investment) * (1 / N)
i.e. {Total return / [(Purchase price per share * Number of shares) + Purchase commission]} * (1 / N)

= {$ 964/[($ 59 *100) + 29]} * (1/2 years)

= 8.13%