Question

An investor buys 1,400 shares of IBM at $160.09 per share at the beginning of the...

An investor buys 1,400 shares of IBM at $160.09 per share at the beginning of the month. IBM pays a $1.03 per share quarterly dividend and traded ex-dividend in the middle of the month. At the end of the month IBM is trading for $155.45 per share. What is the holding period rate of return on the investor's investment (rounded % to three places after the decimal)?

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Answer #1

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Correct Answer : Holding period return = - 2.255%

Working:

Holding period rate of return = [Income generated + (Ending Value - Initial Value)] / Initial value

Here,

Income generated = Divididend received = $ 1.03

Intial value of IBM share = $ 160.09

Ending value of IBM Share = 155.45

Subsitituting the values,

Holding period rate of return = [Income generated + (Ending Value - Initial Value)] / Initial value

Holding period rate of return = [1.03+ (155.45 - 160.09)] / 160.09

Holding period rate of return = [1.03 + (-4.64 )] / 160.09

Holding period rate of return = - 3.61 / 160.09 = - 0.02255

Holding period rate of return = - 2.255 %

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