Question

Problem 16-05 You purchased 140 shares in a real estate investment trust for $50 a share. The trust paid the following annual dividends: Dividend Year $3.20 1 2 2.60 3 2.45 4 2.75 a. What was your annualized return on the investment if you sell the stock for $50? Round your answer to the nearest whole number. b. What was your annualized return on the investment if you sell the stock for $55? Round your answer to the nearest whole number.

Answer 1

Simple Dividend-Adjusted Return = (Current Stock Price-Dividend-Adjusted Stock Purchase Price) / Dividend-Adjusted Stock Purchase Price

Annual Dividend-Adjusted Return = (Simple Dividend-Adjusted Return +1) ^ (1 / Years Held)-1

50-3.2-2.6-2.45-2.75=39

a) 50-39/39= .2821

{(.2821+1)^1/4}-1

=1.0641-1

= 6.41%

b) 55-39/39= 0.4102

{(.4102+1)^1/4}-1

= 1.0897-1

=8.97%