Question

# Suppose that you buy 450 shares of stock at an initial price of \$50 per share....

Suppose that you buy 450 shares of stock at an initial price of \$50 per share. The stock pays a dividend of \$0.52 per share during the following year, and the share price at the end of the year is \$52. Calculate the following:

The capital gains yield for the year

The dividend yield

The total rate of return on the investment for the holding period

The total dollar return for the year

(5 points) Assume that the return of return on a stock for the past five years was 13%, 11%, 2%, -2%, and 15%. Calculate the following:

The arithmetic average return

The geometric average return

(5 points) A stock is currently selling for \$68 per share. You have \$41,000 to invest:

What is the maximum number of shares you can buy if the initial margin is 60%?

What is your percent return if the stock price increases to \$71?

What would your percent return have been if you had simply purchased the stock

without margin?

(5 points) Suppose that you hold an investment for 7 months, during which time the rate of

return is 4.6%. What is your annualized return?

#### Homework Answers

Answer #1

Question 1:

(a) Capital Gains Yield = (Final - Initial Price)/Final Price = (52-50)/50 = 2/50 = 0.04 = 4%

(b) Dividend Yield = Dividend/Initial price = 0.52/50 = 0.0104 = 1.04%

(c) Total return = Capital Gain yield + Dividend Yield = 4 + 1.04 = 5.04%

(d) Dollar return = 450*52 + 450*0.52 - 450*50 = \$1,134

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