Question

Creg purchased stock in Cocktatoo limited at a price of 89 per share a year ago. During the year cocktatoo paid dividend which resulted in a dividend yield of 10% for Creg. At end of the year,cocktatoo limited was acquired by Wombat investment limited at a price of 10 per share and creg was forced to sell his share at that price. what is return on his investment?

Creg purchased stock in Cocktatoo limited at a price of $89 per share a year ago. During the year Cocktatoo paid dividend which resulted in a dividend yield of 10% for Creg. At the end of the year, Cocktatoo limited was acquired by Wombat investment limited at a price of $10 per share and Creg was forced to sell his share at that price. What is Creg's return on his investment? 8

Answer 1

Purchase price = $89 per share

Dividend yield = 10%

Hence, dividend received = 89 x 10%

= $8.9

Sale price of share = $10 per share

Absolute return = Sale price + Dividend received - Purchase price

= 10 + 8.9 - 89

= - $70.1

Return on investment = Absolute return/Purchase price

= -70.1/89

= -78.76% (Rounded to two decimals)

=

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