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Mary Purchased 100 shares of sweet pea CO stock at a price of $47.49 6 months...

Mary Purchased 100 shares of sweet pea CO stock at a price of $47.49 6 months ago. she sold all stocks today for $46.33. during that period the stock paid dividends of $2.45 per share what is Mary's affective annual rate.

Tom purchased 100 shares of Dallia CO stock at a price of $120.01 four months ago. he sold all stocks today for $124.68 during the year the stock paid dividends of $5.18 per share what is tom's effective annual rate

Expert Solution

Answer:

Calculation of Effective Annual Rate for Mary :

Effective Rate of Return = (Capital Gain on stock + Dividend Received) / Initial Investment

Capital Gain = Sales - Purchase

=(100*$46.33) - (100*$47.49)

= - $116 (capital Loss)

DIvidend Received = 100*$2.45 = $245

Initial Investment = 100*$47.49 = $4749

Therefore Rate of Return ( for 6 months) = (-116 +245) / 4749

=0.02716 or 2.716 % (Multiply by 100 to convert in % )

Effective Annual Rate = Rate for 6 months * 2

= 2.716% * 2 = 5.433%

Therefore Effective Annual Rate for Return for Mary is 5.433%

Calculation of Effective Annual Rate for TOM :

Effective Rate of Return = (Capital Gain on stock + Dividend Received) / Initial Investment

Capital Gain = Sales - Purchase

=(100*$124.68) - (100*$120.01)

= $458

Dividend Received = 100*$5.18 = $518

Initial Investment = 100*$120.01 = $12001

Therefore Rate of Return ( for 4 months) = (458 +518) / 12001

=0.0813 or 8.13 % (Multiply by 100 to convert in % )

Effective Annual Rate = Rate for 4 months * 3

= 8.13% * 3 = 24.39%

Therefore Effective Annual Rate for Return for Tom is 24.39%

jeff jeffy answered 2 years ago

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