Question

Brett purchased 1000 shares of stock in Electrode Semiconductor Corp for $7.50 on January 1^st. He received $0.375 per share in dividends on March 31^st and on October 30^th. On December 30^th he sells 1000 shares for $7.35. What is his one-year holding period rate of return?

	a.	8.0%
	b.	5.1%
	c.	7.0%
	d.	-2.0%

Answer 1

The correct answer is a. 8.0%

Holding Period Return = [(Dividend distribution + Capital gains distribution + Change in Price) / Beginning price] * 100

Dividend distribution = $0.375 + $0.375

= $0.750

Capital gains distribution = 0 (Since no information is given about capital gains)

Change in Price = Ending Price - Beginning price

= $7.35 - $7.50

= -$0.15 or ($0.15)

This shows that shares were purchased at a higher price and sold at a lower price.

Therefore Holding Period Return will be

= [0.750 + 0 + (0.15) / 7.50] * 100

= (0.60 / 7.50) * 100

= 8%