Question

What is the average annualized compounded return of a stock given the information below: Stock Price on 02/01/2014 = 22.67 per share Stock Price on 04/30/2014 = 22.77 per share Cash Dividend Received 03/30/2014 = .12 per share

3.88%

2.94%

2.91%

3.94%

Answer 1

Price on 02/01/2014, p0 = 22.67

Stock Price on 04/30/2014, p3 = 22.77

Cash Dividend Received 03/30/2014 , d1= .12 per share

let r be the return for 2 months

p0 = [ d1/(1+r)] + [p1/(1+r)² ]

22.67 = [0.12/(1+r)] + [22.77/(1+r)² ]

we have to find by trial and error which satisfies the above equation

we find that r = 0.004849

now the annualized return compounded every 2 months, R = r*6 = 0.004849*6 = 0.02909 or 2.909% or 2.91%

the annualized return compounded annually = (1+(R/6))⁶ -1 = (1+(0.02909/6))⁶ - 1 = 0.02944 or 2.94%