Question

1. Returns. Suppose you purchased Elevated Health Management’s stock on March 16, 2016 and held it for one year, selling on March 15, 2017. Below are the cash flows from holding HMA stock for each period.

Date	Price	Dividend
16−Mar−16	21.15
10−May−16	20.70	0.06
9−Aug−16	20.62	0.06
8−Nov−16	19.39	0.06
15−Feb−16	20.33
2−Mar−17	10.29	10.00
15−Mar−17	11.07

1. Calculate the dividend yield, capital gains yield, and realized return between each set of dates. (18 points)
2. Calculate the realized return for the whole period. (7 points)

Answer 1

Answer A.

Between 16th March 2016 to 10th May 2016

Dividend Yield = Dividend / Initial Price = 0.06 / 21.15 = 0.28%

Capital Gains Yield = [ ( 20.70 - 21.15 ) / 21.15 ] * 100 = -2.13%

Realized Returns = Dividend Yield + Capital Gains Yield = 0.28 - 2.13 = -1.84%

Between 10th May 2016 and 9th August 2016

Dividend Yield = Dividend / Initial Price = 0.06 / 20.70 = 0.29%

Capital Gains Yield = [ ( 20.62 - 20.70 ) / 20.70 ] * 100 = -0.39%

Realized Returns = Dividend Yield + Capital Gains Yield = 0.29 - 0.39 = -0.10%

Between 9th August and 8th November 2016

Dividend Yield = Dividend / Initial Price = 0.06 / 20.62 = 0.29%

Capital Gains Yield = [ ( 19.39 - 20.62 ) / 20.62 ] * 100 = -5.97%

Realized Returns = Dividend Yield + Capital Gains Yield = 0.29 - 5.97 = -5.67%

Between 8th November 2016 to 15th February 2017

No dividend during this period.

Capital Gains Yield = [ ( 20.33 - 19.39 ) / 19.39 ] * 100 = 4.85%

Realized Returns = Dividend Yield + Capital Gains Yield = 0.00 + 4.85 = 4.85%

Between 15th February 2017 to 2nd March 2017

Dividend Yield = Dividend / Initial Price = 10.00 / 20.33 = 49.19%

Capital Gains Yield = [ ( 10.29 - 20.33 ) / 20.33 ] * 100 = -49.39%

Realized Returns = Dividend Yield + Capital Gains Yield = 49.19 - 49.39 = -0.20%

Between 2nd March 2017 and 15th March 2017

No dividend during this period.

Capital Gains Yield = [ ( 11.07 - 10.29 ) / 10.29 ] * 100 = 7.58%

Realized Returns = Dividend Yield + Capital Gains Yield = 0.00 + 7.58 = 7.58%

Answer B.

Dividend Yield for Whole Period = Dividend / Initial Price = ( 10 + 0.06 + 0.06 + 0.06 ) / 21.15 = 48.13%

Capital Gains Yield = [ ( 11.07 - 21.15 ) / 21.15 ] * 100 = -47.66%

Realized Returns = Dividend Yield + Capital Gains Yield = 48.13 - 47.66 = 0.47%