1. Suppose a stock had an initial price of $90 per share, paid a dividend of $2.

Question

1. Suppose a stock had an initial price of $90 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $98.

Compute the percentage total return. (Round your answer to 2 decimal places. (e.g., 32.16))

2.  

Suppose a stock had an initial price of $54 per share, paid a dividend of $1.30 per share during the year, and had an ending share price of $64.

What was the dividend yield and the capital gains yield? (Round your answers to 2 decimal places. (e.g., 32.16))

What are the arithmetic and geometric returns for the stock? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

1. Suppose a stock had an initial price of $90 per share, paid a dividend of $2.40 per share during the year, and had an ending share price of $98.

Explanation / Answer

1. Total Return = (98+2.4-90)/90 = 11.56%

2.

Dividend Yield = (( Dividend) / Closing Price) = 1.3/64 =2.03%

Capital gains yield = (64+1.3-54)/54=20.93%

3.

Return = (Ending price+dividend-beginning price)/beginning price

Average arithmetic return = (R1 + R2 +R3 +R4 +R5 )/5 = (13.43%+20.23%+-19.09%+17.40%+19.37%)/5 = 10.27%

Geometric average return = [[(1+ percent return) X (1+ percentreturn) X (1+ percent return) X

(1+ percent return) X (1+ percent return)])^(1/ no. ofyears)] - 1 = (113.43%*120.23%*(1-19.09%)*117.40%*119.37%)^(1/5)-1 = 9.11%

Arithmetic return = 10.27%

Geometric average return = 9.11%

Price Dividend Return 1 43.55 - 2 48.53 0.87 13.43% 3 57.45 0.9 20.23% 4 45.53 0.95 -19.09% 5 52.45 1 17.40% 6 61.53 1.08 19.37%

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