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%

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