Question

An investor buys 185 amazon shares for $2400 each. she holds the investment for 2.5 years, collects $175 in dividends per share over this period, then sells the shares for a profit of $475 each. what is her total return?

Answer 1

Solution :

Total return is the return on an investment for the period during which it is held.

The total return in percentage terms is as calculated as follows :

Total Return = [ ( Total Profit on sale + Total Dividend earned during the period ) / Purchase Price ]         

As per the information given in the question we have

No. of shares purchased = 185 ; Purchase price per share = $ 2,400 ;

Dividends per share over this period = $ 175 ; No. of Shares sold = 185 ;   

Profit per share sold = $ 475 ;

Thus we have

Purchase price of the investment = No. of shares purchased * Purchase price per share

= 185 * $ 2,400 = $ 444,400

Dividend earned during the period = No. of shares purchased * Dividends per share over this period.

= 185 * $ 175 = $ 32,375

Total Profit on sale = No. of Shares sold * Profit per share sold

= 185 * $ 475 = $ 87,875

Applying the above information we have total return as

= ( $ 87,875 + $ 32,375 ) / $ 444,400

= $ 120,250 / $ 444,400

= 0.270833

= 27.0833 %

= 27.08 % ( when rounded off to two decimal places )

Thus the total return in percentage terms = 27.08 %

The total return in dollars = $ 120,250