Question

You bought a stock a year ago for $50 per share and sold it today for $55. It paid a $1 dividend yesterday. 1. What was your realized return? 2. How much of the return came from the dividend yield and how much came from the capital gain? 3. The same scenario as above, but the stock fell to $45 per share. What is the dividend yield now? What is the capital gain now?

Answer 1

Answer a.

Purchase Price = $50.00
Selling Price = $55.00
Dividend = $1.00

Realized Return = (Selling Price + Dividend - Purchase Price) / Purchase Price
Realized Return = ($55.00 + $1.00 - $50.00) / $50.0
Realized Return = $6.00 / $50.00
Realized Return = 0.12 or 12.00%

Answer b.

Capital Gain Yield = (Selling Price - Purchase Price) / Purchase Price
Capital Gain Yield = ($55.00 - $50.00) / $50.00
Capital Gain Yield = $5.00 / $50.00
Capital Gain Yield = 0.10 or 10.00%

Dividend Yield = Dividend / Purchase Price
Dividend Yield = $1.00 / $50.00
Dividend Yield = 0.02 or 2.00%

Answer c.

Purchase Price = $50.00
Selling Price = $45.00
Dividend = $1.00

Realized Return = (Selling Price + Dividend - Purchase Price) / Purchase Price
Realized Return = ($45.00 + $1.00 - $50.00) / $50.0
Realized Return = -$4.00 / $50.00
Realized Return = -0.08 or -8.00%

Capital Gain Yield = (Selling Price - Purchase Price) / Purchase Price
Capital Gain Yield = ($45.00 - $50.00) / $50.00
Capital Gain Yield = -$5.00 / $50.00
Capital Gain Yield = -0.10 or -10.00%

Dividend Yield = Dividend / Purchase Price
Dividend Yield = $1.00 / $50.00
Dividend Yield = 0.02 or 2.00%