Question

You decide to take your first step towards investing and purchase an International Business Machines (IBM) stock. The IBM stock started the year at $180 per share, paid $5 in dividends, and ended 2019 at $150. Please compute the dollar return and percentage return of your investment. Interpret the percentage return.

Answer 1

IBM Stock started for the year(P0) = $180 per share

IBM Stock ended in the year(P1) = $150 per share

Dividends(D) = $5

- Dollar Return of Investment = (Closing Price - Starting Price)+ Dividends

= ($150 - $180) + $5

= -$ 25

- Percentage Return of Investment

= -13.89%

- Interpreting the percentage return:-

Percentage Return of Investment = Capital Gain Yield + Dividend Yield

= -16.667 + 2.777

= -13.89%

So, Percentage return is equal to Capital Gain Yield + Dividend Yield

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