Question

Cyclone Smith constructed a portfolio consisting of 200 shares of ACC purchased at $210 per share and 500 shares of SEC purchased at $95 per share. One year later, ACC is trading at $185 per share and SEC is trading at $107 per share. During the year, ACC paid a dividend of $5.40 per share and SEC paid a dividend of $3.90 per share. What was the total portfolio $ return for Cyclone Smith?

Answer 1

The total portfolio is computed as shown below:

= (Selling value - Purchase value + dividend) / Purchase value

Selling value is computed as follows:

= Number of shares of ACC x Price per share of ACC + Number of shares of SEC x Price per share of SEC

= 200 x $ 185 + 500 x $ 107

= $ 90,500

Purchase value is computed as follows:

= Number of shares of ACC x Price per share of ACC + Number of shares of SEC x Price per share of SEC

= 200 x $ 210 + 500 x $ 95

= $ 89,500

Dividend is computed as follows:

= Number of shares of ACC x Dividend per share of ACC + Number of shares of SEC x Dividend per share of SEC

= 200 x $ 5.40 + 500 x $ 3.90

= $ 3,030

So, the portfolio return is computed as follows:

= $ 90,500 - $ 89,500 + $ 3,030

= $ 4,030

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