Question

In: Finance

Assume an investor buys 5 shares of Stock A on January 1 2015 for $80 per...

Assume an investor buys 5 shares of Stock A on January 1 2015 for $80 per share. During the year the stock paid $2 in dividends per share. On Jan 1, 2016, the investor purchases another 8 shares at $84. During the year the stock paid another $2 dividend. On Jan 1, 2017, the investor sells 3 shares for $85, but collects the same $2 in dividends throughout 2017 on the remaining shares. Finally on Jan. 1, 2018 the investor sells all of his shares for $90. What is the geometric rate of return? Round all intermediate calculations to 4 decimals points (0.XXXX), convert answer into percentages with two decimal places, do not use the % sign.

Solutions

Expert Solution

Return from 2015 to 2016 =(Price next year -Price current Year + Dividend)/Price Current year
=(84-80+2)/80=7.5%
Return from 2016 to 2017 =(Price next year -Price current Year + Dividend)/Price Current year
=(85-84+2)/84=3.5714%
Return from 2017 to 2018 =(Price next year -Price current Year + Dividend)/Price Current year
=(90-85+2)/85=8.2353%
Geometric return of return =((1+7.5%)*(1+3.5714%)*(1+8.2353%))^(1/3)-1 =6.42%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

Investor buys 200 shares of stock at $27.25 per share. Investor sells the stock after one...
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...
An investor buys 400 shares of stock selling at $70 per share using a margin of...
An investor buys 400 shares of stock selling at $70 per share using a margin of 40%. The stock pays annual dividends of $2 per share. A margin loan can be obtained at annual interest cost of 6%. Determine what return on invested capital the investor will realize if the price of the stock increases to $94 within twelve months. A. 33.54% B. 34.29% C. 37.14% D. 55.90% E. 83.86%
Sam buys 100 shares of Acme stock at $100 per share on January 1, Year 1....
Sam buys 100 shares of Acme stock at $100 per share on January 1, Year 1. At the end of the first year (December 31, Year 1), she buys 100 more shares at $120 per share. At the end of the second year (December 31, Year 2), she buys another 100 shares for $135 per share. The stock pays a dividend of $2.00 per share on December 29th of each year. Acme is trading at $169.80 as of December 31,...
Sam buys 100 shares of Acme stock at $100 per share on January 1, Year 1....
Sam buys 100 shares of Acme stock at $100 per share on January 1, Year 1. At the end of the first year (December 31, Year 1), she buys 100 more shares at $120 per share. At the end of the second year (December 31, Year 2), she buys another 100 shares for $135 per share. The stock pays a dividend of $2.00 per share on December 29th of each year. Acme is trading at $169.80 as of December 31,...
On January 1, 2015, when its $30 par value common stock was selling for $80 per...
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $30 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common stock. The debentures were issued for $31 million. At the time of issuance, the present value of the bond payments was $28.50 million, and the corporation believes...
On January 1, 2015, when its $30 par value common stock was selling for $80 per...
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value of the bond payments was $8.5 million, and the corporation believes...
On January 1, 2015, when its $30 par value common stock was selling for $80 per...
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value of the bond payments was $8.5 million, and the corporation believes...
On January 1 2015, when its $30 par value common stock was selling for $80 per...
On January 1 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporations $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value if the bond payments was $8.5 million, and the Corporation believes the...
On January 1, 2015, when its $30 par value common stock was selling for $80 per...
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value of the bond payments was $8.5 million, and the corporation believes...
On January 1, 2015, when its $30 par value common stock was selling for $80 per...
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $30 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert it into six shares of the corporation’s $30 par value common stock. The debentures were issued for $31 million. At the time of issuance, the present value of the bond payments was $28.50 million, and the corporation believes...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT