Mary purchased 100 shares of Sweet Pea Co. stock at a price of $43.65 six months ago. She sold all stocks today for $48.00. During that period the stock paid dividends of $2.68 per share. What is Mary’s effective annual rate?
- Purchase price of Sweet Pea Co. stock = $43.65 per share*100 shares
= $4365
- Shares were sold at = $48 per share*100 share
= $4800
- Total dividend received = $2.68 per share*100 share
= $268
Effective Annual Return = [(Selling price + Dividend Income)/Purchase Price]^(1/n) -1
where, no of years = 6months/12months = 0.5 years
Effective Annual Return =[($4800+$268)/$4365]^(1/0.5) - 1
Effective Annual Return =[($5068)/$4365]^(1/0.5) - 1
Effective Annual Return = 1.348046 - 1
Effective Annual Return = 34.8046%
So, Mary’s effective annual rate is 34.8046%
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