Question

Mary purchased 100 shares of Sweet Pea Co. stock at a price of $48.29 six months ago. She sold all stocks today for $44.78. During that period the stock paid dividends of $2.96 per share. What is Mary’s effective annual rate?

Answer 1

Answer:

Semi-Annual Rate of Return = (Selling Price + Dividend – Purchase Price) / Purchase Price * 100
Semi-Annual Rate of Return = ($44.78 + $2.96 - $48.29) / $48.29 * 100
Semi-Annual Rate of Return = -$0.55 / $48.29 * 100
Semi-Annual Rate of Return = -1.14%

Effective Annual Rate = (1 + Semi Annual rate of Return)^ 2 – 1
Effective Annual Rate = (1 + (-0.114)) ^ 2 – 1
Effective Annual Rate = (1 – 0.0114) ^2 – 1
Effective Annual Rate = (0.9886)^ 2 – 1
Effective Annual Rate = 0.97733 – 1
Effective Annual Rate = -0.02267 or -2.27%