Question

New Orleans Shipping. If the share price of​ Emaline, a New​ Orleans-based shipping​ firm, rises from $12.13 to $15.96 over a​ one-year period, calculate the rate of return to the shareholder given each of the​ following:

a. The company paid no dividends.

b. The company paid a dividend of $1.01 per share.

c. The company paid the dividend and the total return to the shareholder is separated into the dividend yield and the capital gain.

Answer 1

a. The rate of return is computed as shown below:

= ( Ending price - Beginning price ) / Beginning price

= ($ 15.96 - $ 12.13) / $ 12.13

= 0.3157 or 31.57% approximately

b. The rate of return is computed as shown below:

= ( Ending price - Beginning price + Dividend ) / Beginning price

= ($ 15.96 - $ 12.13 + $ 1.01) / $ 12.13

= 0.3990 or 39.90% approximately

c. Dividend yield = Dividend / Beginning price

= $ 1.01 / $ 12.13

= 0.0833 or 8.33% approximately

Capital gain =  ( Ending price - Beginning price ) / Beginning price

= ($ 15.96 - $ 12.13) / $ 12.13

= 0.3157 or 31.57% approximately

The same can be verified also i.e.

Dividend yield return + capital gain return = total return

= 31.57% + 8.33%

= 39.90%

So we have verified also that our capital gain and dividend yield are correct whose sum is equal to the total return.

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