Question

What is the percentage return on a stock that was purchased for $48.40, paid a $1.67 dividend, and was then sold after one year for $46.20?
a) -1.10%
b) -2.50%
c) 0.23%
d) -0.33%

Answer 1

Answer:

a) -1.10%

Explanation:

To calculate the holding period return we will use the foloowinf formula

Holding Period return = ( Dividend Income + Price appreciation ) / Initial price

Where

Dividend Income = $1.67

Price appreciation = Selling Price - Initial price = $46.20 - $48.40 = -$2.20

Initial Price = $48.40

Placing the above values in the formula of Holding period return

Holding period return = ( $1.67 + ( -$2.2 ) ) / $48.40

Holding period return = ( $1.67 - $2.2 ) / $48.40

Holding period return = -$0.53 / $48.40

Holding period return = -0.01095

Holding period return = -1.095%

Holding period return = -1.10%