Nano-Motors Corp. Has stock outstanding which sells for 10$ per share. Macro-Mot

Question

Nano-Motors Corp. Has stock outstanding which sells for 10$ per share. Macro-Motors, Inc. shares cost $50 each. Neither sotck pays dividends at present.
  

a. An investor buys 100 shares of Nano-Motors. A year later, the stock sells for $15. Calculate the total return in dollar terms and in percentage terms.

b. Another investor buys 100 shares of Macro-Motors stock. A year later, the stock has risen to %56. Calculate the total reurn in dollar terms and in percentage terms.

c. Why is it difficult to say which investor had a better year?

Explanation / Answer

a) total dollar return = number of stock*(selling price - purchase price) = 100*(15-10) = 500

Percentage return = ((selling price/purchase price)-1)*100 = (15/10-1)*100 = 50%

b)

total dollar return = number of stock*(selling price - purchase price) = 100*(56-50) =600

Percentage return = ((selling price/purchase price)-1)*100 = (56/50-1)*100 = 12%

c) It is difficult because one investor had lower dollar return but greater percentage return and other investor had higher dollar return and lower percentage return

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