Question

Hakim purchased 200 shares of Stella Corporation Stock at $16.80 a share. One year later, the Stella Corporation Stock had a market value of $18.30. Two years later, he sold the stocks for $19.80 a share. He paid his broker a $20 commission when he purchased the stocks and a $30 commission when he sold them. He received $200 in dividends each year that he owned the stocks.

1. Calculate Hakim’s annual return on his investments for both Year 1 and Year 2. [5 points]

1. What was Hakim’s Dividend Yield in Year 2? [2 points]

1. What was Hakim’s Capital Yield in Year 1? [2 points]

Answer 1

No of Share Purchased (n)		200
Purchase Price (P)		16.8
Share Price after 1st year (S1)		18.3
Share Price after 2nd year (S2)		19.8
Commission paid to Broker at time of Purchase ( Cp)		20
Commission paid to Broker at time of Selling ( Cs)		30
Dividends received 1st year (D1)		200
Dividends received 2nd year (D2)		200
Intial investment (n*P + Cp)		3380
Total Value of shares and dividend recieved after 1st year (n*S1 + D1)		3860
Total Value of shares and dividend recieved after 2nd year including commision paid to broker at time of selling (n*S2 +D1 + D2 - Cs)		4330
First Year annual return for investment made((n*S1+D1)/(n*P+ Cp)) ^(no of years) -1		14.20%
2nd Year return for investment made((n*S2 +D1 + D2 - Cs)/(n*S1+D1)) ^(no of years) -1		12.18%
Dividend Yield in 2nd Year (D2/(n*S2))		5.05%
Capital Yield in Year 1 ((S2-S1)*n)/(S1*n)		8.929%