Question

5-6. Earlier today, Stuart sold 200 shares of stock he owned. He purchased the stock three years ago for $28 per share. Following is a table that shows the market value of the stock at the end of each year and the amount of the dividend that Stuart received during the year: Year Market Dividend Value (per share) share) (per $26 50.60 28 0.60 32 0.60 (a) What total return (yield) did Stuart earn during the three-year period he held the stock? (b) What return did Stuart earn for each year he held the stock?

Answer 1

Answer-5-6-

Answer a
Total Return = [(P1 - P0) + D] / P0
P0 = Initial stock price = $28 * 200 = $5600
P1 = Ending stock price (Year 3) = $32 * 200 = $6400
D = Dividends = 200 * $1.80 = $360
Total Return = [(6400 - 5600) + 360] / 5600 = 20.71%
Answer b
Year	Initial stock price	Ending stock price	Dividend	Return	Return %
1	$5,600	$5,200	$120	-$280	-5.00%
2	$5,600	$5,600	$120	$120	2.14%
3	$5,600	$6,400	$120	$920	16.43%

Answer-5-5-

Part a

Total dividend = $0.50 x 8

                            = $4.0

Holding period return = (selling price + dividend – buying price)/ Buying price

                                           = (45+4-50)/50

                                           = -2%

Part b

Return in year 1

Holding period return = (selling price + dividend – buying price)/ Buying price

                                           = (45+0.50 x 4-50)/50

                                           = -6%

Return in year 2

Holding period return = (selling price + dividend – buying price)/ Buying price

                                           = (45+0.50 x 4-45)/45

                                           = 4.44%