Question

# A stock had the following year-end prices and dividends: Year Price Dividend 0 \$ 59.35 —...

A stock had the following year-end prices and dividends:

 Year Price Dividend 0 \$ 59.35 — 1 69.86 \$ 1.19 2 62.18 1.43 3 71.30 1.54

What was the arithmetic average return for the stock?

11.63%

9.30%

15.18%

15.27%

8.49%

Yearly Return = [(Change in Share Price + Dividend per share) / Share Price at the Beginning] x 100

Year 1 Return

Year 1 Return = [{(\$69.86 - \$59.35) + \$1.19} / \$59.35] x 100

= [(\$10.51 + \$1.19) / \$59.35] x 100

= [\$11.70 / \$59.35] x 100

= 19.71%

Year 2 Return

Year 2 Return = [{(\$62.18 – 69.86) + \$1.43} / \$69.86] x 100

= [(-\$7.68 + 1.43) / \$69.86] x 100

= [-\$6.25 / 69.86] x 100

= -8.95%

Year 3 Return

Year 3 Return = [{(\$71.30 – 62.18) + \$1.54} / \$62.18] x 100

= [(\$9.12 + 1.54) / \$62.18] x 100

= [\$10.66 / \$62.18] x 100

= 17.14%

Arithmetic average return for the stock

Arithmetic average return for the stock = Total Return / Number of years

= [\$19.71% - 8.95% + 17.14%] / 3 Years

= 27.91% / 3 Years

= 9.30%

“Therefore, the Arithmetic average return for the stock would be 9.30%”

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