Question

Which of the following best describes the formula for the total return on a stock?

Select one:

a. The total return on a share of stock is calculated by adding the dividend yield and the capital gains yield.

b. The total return on a share of stock is calculated by dividing the dividend yield and the capital gains yield.

c. The total return on a share of stock is calculated by adding the dividend yield and the firm's management expense ratio.

d. The total return on a share of stock is calculated by adding the dividend yield and any commissions paid when the stock was bought.

Answer 1

The income sources from a stock is dividends and its increase in value.

Total Return on stock (percentage calculation)=  (P1-P0) + D /P0

where P0= Initial Stock price

P1= Ending stock price period 1

D= Dividends

OR

Total return on a stock = Dividend Yield + Capital Gain Yield

Hence answer is option A.

Please note that if in the question there is any commision provided, we have to deduct commission paid from capital gain and add dividend.