Question

24. Western Wildflowers has paid an annual dividend of $0.50 per share at the end of the
past 10 years. Over the same 10 years, Western’s share price rose from IPO of $12.10 at
the beginning of the first year to $15.80 at the end of year 10. What is the annualized total
return for an investor who held the stock throughout?
a. 6.0%
b. 6.2%
c. 6.4%
d. 6.6%

Answer 1

Answer is 6.4%

Opening price = $12.10
Selling price = $15.80
Annual dividend = $0.50
Time period = 10 years

Let annual rate of return be i%

$12.10 = $0.50 * PVA of $1 (i%, 10) + $15.80 * PV of $1 (i%, 10)

Using financial calculator:
N = 10
PV = -12.10
PMT = 0.50
FV = 15.80

I = 6.4%

Annualized total return = 6.4%