Question

Blaxo Ballons manufactures and distributes and distributes birthday balloons. At the begining of the year Blaxo's common stock was selling for $22.99 but by year end it was only $20.14. If the firm paid a total cash dividend of $2.41 during the year, what rate of return would you have earned if you had purchased the sock exactly one year ago? What would your rate of return have been if the firm had paid no cash dividend?

Answer 1

Rate of return on holding a stock:

$R = \frac{(\textup{End Price - Beginning Price})+\textup{Dividend}}{\textup{Beginning Price}}$

putting the values:

$R = \frac{(20.14-22.99)+2.41}{22.99}$

$R = \frac{-0.44}{22.99}$

$R = -0.019138755980$

$\bg_green \large R = -1.91\%$

If firm had paid no cash dividend, then rate of return (R) would be:

$R = \frac{(20.14-22.99)+0}{22.99}$

$R = \frac{-2.85}{22.99}$

$R = -0.123966942148$

$\bg_green \large R = -12.40\%$

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.