Question

What is the average annualized compounded return of a stock given the information below:

Stock Price on 02/01/2014 = 22.67 per share

Stock Price on 04/30/2014 = 22.77 per share

Cash Dividend Received 03/30/2014 = .12 per share

3.88%

2.94%

2.91%

3.94%

Answer 1

Correct option is > 3.94%

Working:

Stock Price on 02/01/2014 = 22.67 per share (beginning)

Stock Price on 04/30/2014 = 22.77 per share (3 months later)

Cash Dividend Received 03/30/2014 = .12 per share

We are required to calculate return for approximately 3 months.

.

Return for 3 months = (Dividend + Stock Price on 04/30/2014 - Stock Price on 02/01/2014)/ Stock Price on 02/01/2014

Return for 3 months = (0.12 + 22.77 - 22.67)/ 22.67

Return for 3 months = 0.970446%

.

Now we can calculate average annualized compounded return:

Annualized return = (1+Returns for 3 months)^4 – 1

Annualized return = (1+0.970446%)^4 - 1

Annualized return = 3.94%