Question

Josh purchased 200 shares of HAR stock at​ $25.30 per share and sold it 9 months later for​ $27.20. HAR does not pay a dividend. At the same​ time, he bought 500 shares of WIG for​ $9.15 a share. He sold WIG for​ $9.65 one year later. During the​ year, WIG paid 4 quarterly dividends of​ $0.07 each. The most useful way to compare the holding period returns on these stocks is to

A.

Divide the 1 year return on WIG by​ 9/12.

B.

Multiply the 9 month return on HAR by​ 12/9.

C.

Divide the 9 month return on HAR by​ 9/12.

D.

The two holding period returns cannot be compared.

Answer 1

Solution :

None of the given options are correct.

The holding period returns from both the stock can be compared.

However, the returns on these stocks can be compared by finding out the annualized return or holding period return for each of these stocks.

Formula :

(Dividend+ Increment or decrease in the value of the share during the period) divided by initial value of the share.

Note : Increment value or decrease in value can be computed as follows :

Current Value of the share - initial value of the share.