Question

At the beginning of the year, your neighbor bought 250 shares of Nu-Tek Corporation and paid $104.32 per share. The share price at the end of the year was $193.65. During the year, your neighbor received a dividend payment from Nu-Tek of $2.34 per share. What was your neighbor's dollar return on this investment? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

RATE OF RETURN CALCULATION

Rate of return in case of equity share investment is calculated by taking into account all investement recepits like market value at the time of selling, if not sold then value at the day when return is calculated. Also dividend income will be taken into consideration for calculating return on investment.

Formula is as follows: -

Rate of return = (Selling price/Market price - Cost of purchase + Dividend income) / cost of purcashe x 100

Rate of return = [( 193.65 - 104.32 + 2.34 ) / 104.32] x 100

Rate of return = (91.67 / 104.32) x 100

Rate of return = 87.87% annualy.

Please note we have not taken into consideration time value of money effect i.e. interest is ignored.