Question

2) BCE stock had a realized return of 20%, 6%, -12%, and -6% over four successive quarters. What is your annual realized return if you bought BCE at the beginning of the year and sold it at the end of the year?

A) 1.0%

B) 1.5%

C) 4.0%

D) 5.2%

E) 6.0%

Answer 1

Let the stock price at beginning of the year be X.

Stock price after a time interval = Price at beginning*(1+realized return)

Stock price after 1st Quarter = X*(1+.2) = X*(1.2)

Stock price after 2nd Quarter = X*(1.2)*(1+.06) = X*(1.2)*(1.06)

Stock price after 3rd Quarter = X*(1.2)*(1.06)*(1-.12) = X*(1.2)*(1.06)*(0.88)

Stock price after 4th Quarter(end of year) = X*(1.2)*(1.06)*(0.88)*(1-.06) = X*(1.2)*(1.06)*(0.88)*(0.94) = X*1.0521

Now, annual realized return = (Price at End - Price at beginning of the year)/Price at beginning

= (X*1.0521 - X)/X

= .0521

= 5.2%

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