Question

Jane bought 200 stocks of the Round Wheel Corporation for $26 each and sold them 5 years later for $32 each. These stocks paid an annual dividend (i.e., share of annual company profit) of $3.00 per stock. What is the interest rate made on this investment? Jane bought 200 stocks of the Round Wheel Corporation for $26 each and sold them 5 years later for $32 each. These stocks paid an annual dividend (i.e., share of annual company profit) of $3.00 per stock. What is the interest rate made on this investment?

Answer 1

1.Jane brought 200 stocks of Round Wheel Corporation @26 $ each

Hence the total investment made by jane= 200 stocks X $26= $5200

annual dividend per stock=$3 and stocks sold after 5 years hence dividend recived is for 5 years

hence returns through dividend for 1 year= $3 x 200 stocks=$600

returns through dividend for 5 years= 5 years x $600= $3000

returns through selling of stocks after 5 years @ of $32 per stock= $32 x 200 stocks= $6400

Threfore the total returns= $6400 + $ 3000= $9400

Profit made through this investment= $9400 - $ 5200 = $$4200

rate of returns=($4200/$5200)x 100= 80.76%

Hence the interest rate made on this investment is 80.76%