Question

You purchased 140 shares in a real estate investment trust for $50 a share. The trust paid the following annual dividends: Year Dividend $3.20 2.60 2.45 2.75 a. What was your annualized return on the investment if you sell the stock for $502 Round your answer to the nearest whole number b. What was your annualized return on the investment if you sell the stock for 5557 Round your answer to the nearest whole number

Answer 1

a). Annualized Return = [(Selling Price + D1 + D2 + D3 + D4) / Purchase Price]^1/n - 1

= [($50 + $3.20 + $2.60 + $2.45 + $2.75) / $50]^1/4 - 1

= [1.22]^1/4 - 1

= 1.0510 - 1 = 0.0510, or 5%

b). Annualized Return = [(Selling Price + D1 + D2 + D3 + D4) / Purchase Price]^1/n - 1

= [($55 + $3.20 + $2.60 + $2.45 + $2.75) / $50]^1/4 - 1

= [1.32]^1/4 - 1

= 1.0719 - 1 = 0.0719, or 7%