Question

5-5. Yesterday Sandi sold 1,000 shares of stock that she owned for $45 per share. When she purchased the stock two years ago, Sandi paid $50 per share. Every three months during the time that she held the stock, Sandi received a quarterly dividend equal to $0.50 per share. A total of eight dividends were received. (a) What return (yield) did Sandi earn during the two years she held the stock? (b) If the price of the stock was $45 per share one year ago, what return did Sandi earn in each year she held the stock?

Answer 1

Answer to Question 5-5.

Part a.
Quarterly Dividend = $0.50 per share
Total Dividend received in 2 years = $0.50 * 8
Total Dividend received in 2 years = $4

Return on Investment = (Dividend + Sale Proceeds – Purchase Price) / Purchase Price * 100
Return on Investment = ($4 + $45 - $50) / $50 * 100
Return on Investment = -2.00%

Part b.
Quarterly Dividend = $0.50 per share
Total Dividend received in 1 years = $0.50 * 4
Total Dividend received in 1 years = $2

Return on Investment = (Dividend + Sale Proceeds – Purchase Price) / Purchase Price * 100
Return on Investment in Year 1= ($2 + $45 - $50) / $50 * 100
Return on Investment in Year 2 = -6.00%

Return on Investment in Year 1= ($2 + $45 - $45) / $45 * 100
Return on Investment in Year 2 = 4.44%