Question

An ABC Ltd share was selling for $8.01 two years ago. The share sold for $9.87 one year ago, and it is currently selling for $28.20. ABC Ltd pays a $1.69 dividend each year-end. What was the rate of return for owning ABC shares in the most recent year? (In percentages to two decimal places eg 2.881% is 2.88; don’t use % sign)

Answer 1

It is specified in the question to find out the rate of return for owing ABC shares in the MOST RECENT YEAR.

So, only the latest year of the shares is to be considered to find out the rate of return on ABC shares.

Consider that ABC shares were bought a year back at $9.87 when they were being sold at that price.

ABC Ltd further declared a dividend and paid a dividend of $1.69 at the end of the year.

Now the shares of ABC Ltd are currently selling for $28.20.

Capital Gain on the Shares = Price at the year-end - the Opening price of the share at the begging of the year.

= $ 28.20 - $ 9.87

= $ 18.33.

Total return from the Shares = Capital Gain Income + Dividend Income

= $ 18.33 + $ 1.69

= $ 20.02

Rate of return from the shares = Total Return / Intial investment

= $ 20.02 / $ 9.87

= 2.0283

= 2.03 (Approx)