Question

On February 20, you bought shares of stock in Microsoft (MSFT), at \$107.15 per share. One...

On February 20, you bought shares of stock in Microsoft (MSFT), at \$107.15 per share. One quarter later, in mid-May, you sold your shares at a price of \$126.02/share. An instant before the sale, you received a dividend of \$0.46/share.1 a. (i) Compute the total (or holding period) percentage return on your investment. (ii) Translate the quarterly return from part a(i) into an effective annual return. // Total return can be decomposed into two components. b. Calculate the dividend yield. c. Calculate the capital gains yield.

(a)

(i)

HPR = (sale price + dividend - purchase price) / purchase price

HPR = (\$126.02 + \$0.46 - \$107.15) / \$107.15

HPR = 18.04%

(ii)

EAR = (1 + quarterly return)4 - 1

EAR = (1 + 18.04%)4 - 1

EAR = 94.14%

(b)

dividend yield = dividend / purchase price

dividend yield = \$0.46 / \$107.15

dividend yield = 0.43%

(c)

capital gains yield =  (sale price - purchase price) / purchase price

capital gains yield =  (\$126.02 - \$107.15) / \$107.15

capital gains yield = 17.61%

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