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2. You purchase one share of stock for $21.52. You sell that one share of stock...

2. You purchase one share of stock for $21.52. You sell that one share of stock after 2 months for $21.52. You received a $1.05 cash dividend while you held the stock. What is the average annualized compounded return?

A. 33.09%

B. 10%

C. 1.05%

D. 9.76%

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Answer #1

Holding Period Return = (Final Price - Initial Price + Dividend)/initial Price

HPR = ($21.52 - $21.52 + $1.05)/$21.52

HPR = 4.8792%

This is return for 2 months.

On an annual basis (6 periods of 2 months each),

Return = (1 + 4.8792%)6 - 1

Return = 1.3309 - 1

Return = 0.3309 = 33.09%

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