Question

Investor buys 200 shares of stock at $27.25 per share. Investor sells the stock after one year. 1. What is the dollar amount of gain and the percent of return if the stock is sold for $32.60 per share? How much does the yield percentage increase to if the stock received a per share dividend of $1.15 during the year? 2. What is the dollar amount of loss and percentage of return if the stock received a per share dividend of $1.35 during the year and the stock sold for $22.30 at the end of the year? 3. How much would the stock need to sell for if the investor received a $.75 per share dividend payment during the year to end up with a 16% rate of return?

Answer 1

1)

Dollar amount = Ending value - beginning value

Dollar amount = (32.6 *200) - (27.25 * 200)

Dollar amount = 6,520 - 5,450

Dollar amount = $1,070

Percent of return = [(Ending value - beginning value) / beginning value] * 100

Percent of return = [(6,520 - 5,450) / 5,450] * 100

Percent of return = 19.63%

b)

Dividend = 1.15 * 200 = 230

Percent of return = [(Ending value + dividend - beginning value) / beginning value] * 100

Percent of return = [(6,520 + 230 - 5,450) / 5,450] * 100

Percent of return = 23.85%

Yield will increase by = 23.85% - 19.63% = 4.22%

2)

Dollar amount = Ending value + dividend - beginning value

Dividend = 1.35 * 200 = 270

Dollar amount = (22.3 *200) - (27.25 * 200) + 270

Dollar amount = 4,460 - 5,450 + 270

Dollar amount = -$720

Percent of return = [(Ending value - beginning value) / beginning value] * 100

Percent of return = [-720 / 4,460] * 100

Percent of return = -16.14%

3)

Stock price = Dividend / rate of return

Stock price = 0.75 / 0.16

Stock price = $4.69