Question

A stock has been reported to have a total holding return of 13% over the last year. The stock was recently sold for $59.65 after a negative impact of $2.50 to account for the dividend about to be paid. What was the stock’s purchase price one year ago?

Answer 1

We would use total holding return formula to calculate purchase price
Total holding return	(Sale price - Purchase price + Dividend)/purchase price
13%	(59.65-Purchase price + 2.50)/Purchase price
13%	(62.15 - Purchase price)/Purchase price
0.13*Purchase price	(62.15 - Purchase price)
1.13 purchase price	62.15
Purchase price	62.15/1.13
Purchase price	$55.00
Thus, stock's purchase price one year ago was $55