Question

Suppose you bought 600 shares of stock at an initial price of $41 per share. The stock paid a dividend of $0.36 per share during the following year, and the share price at the end of the year was $36.

a. Compute your total dollar return on this investment

b. What is the capital gains yield?

c. What is the dividend yield?

d. What is the total rate of return on the investment?

Answer 1

Part a:
Total dollar return=Dividend received+Capital gain or loss due to change in the stock price
Dividend received=$0.36
Initial share price=$41 and final share price=$36
Loss due to change in price=Final share price-Initial share price=$36-$41=-$5
Total dollar return=$0.36-$5=-$4.64

Part b:
Capital gains yield=(Final share price-Initial share price)/Initial share price
=($36-$41)/$41
=-$5/$41
=-0.12195122 or -12.20% (Rounded to two decimal places)

Part c:
Dividend yield=Dividend received/Initial share price
=$0.36/$41=0.008780488 or 0.88% (Rounded to two decimal places)

Part d:
Total rate of return=Dividend yield +Capital gains yield=0.88%-12.20%=-11.32%