Question

Rico bought 100 shares of Banana Republic stock for $24.00 per share on January 1, 2010. He received a dividend of $2.00 per share at the end of 2010 and $3.00 per share at the end of 2011. At the end of 2012, Rico collected a dividend of $4.00 per share and sold his stock for $18.00 per share. What was Rico’s realized holding period return?

Answer 1

Answer:

Explanation:

To find the value of Holding Period Return we use the following formula:

HPR = ((Income + End of Period Value - Original Value) / Original Value) * 100.

Here,

Income = Sum of all dividends = $2 * 100 +$3 * 100 + $4 * 100 = $900

End of perio Value = $18 * 100 = $1800

Original Value = $24 * 100 = $2400

Finally we will substitute above values in HPR formula, we get

HPR = $(\frac{900\;+\;1800\;-\;2400}{2400})*100$

HPR = $\frac{300}{2400} * 100$

HPR = 12.5%.

Hence, the holding period return is 12.5%.

Answer 2

Answer:

12.5%

Explanation:

We have to first calculate Rico's gain per share during the 2010-2012 period:

Rico's gain = -initial purchase price + dividend 1 + dividend 2 + dividend 3 + sales price

Rico's gain = -$24 + $2 + $3 + $4 + $18 = $3

$3 represents a 12.5% [= ($3 / $24) x 100] rate of return for the holding period.

B. 12.5%

Rico bought 100 shares of Banana Republic stock for $24.00 per share on January 1, 2010. He received a dividend of $2.00 per share at the end of 2010 and $3.00 per share at the end of 2011. At the end of 2012, Rico collected a dividend of $4.00 per share and sold his stock for $18.00 per share. What was Rico's realized holding period return? (Pick the closest answer.)