You purchased 300 shares of a particular stock at the beginning of the year at a

Question

You purchased 300 shares of a particular stock at the beginning of the year at a price of $76.63. The stock paid a dividend of $1.60 per share, and the stock price at the end of the year was $83.14.

Youve observed the following returns on Doyscher Corporations stock over the past five years: 24.6 percent, 13.4 percent, 29.8 percent, 2.2 percent, and 21.2 percent. The average inflation rate over this period was 3.22 percent and the average T-bill rate over the period was 4.3 percent.

What was the average real return on the stock? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

You purchased 300 shares of a particular stock at the beginning of the year at a price of $76.63. The stock paid a dividend of $1.60 per share, and the stock price at the end of the year was $83.14.

Explanation / Answer

Solution:

To calculate the dollar return, we multiply the number of shares owned by the change in price per share and the dividend per share received.

The total dollar return = 300($83.14 – 76.63 + 1.60)

                  = 300 x 8.11

                 = $2433

Average Real Return of the stock = 24.6 % + 13.4% + 29.8% + 2.2% + 21.2% / 5

= 91.2% / 5

= 18.24%

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