Question

5. Suppose that one year ago, you spent $70,210 to buy stock in Wyeth Pharmaceutical Corp. which was selling for $50.15 per share. Wyeth paid a dividend of $0.28 per quarter. Yesterday you sold the stock for $41.75 per share. a. What was your capital gain or loss in this stock purchase? $_ b. What was your rate of return on this stock purchase?

Answer 1

Ans:

a)

Capital loss = Number of stock bought * Capital loss per stock

                   = 1,400 * $8.40

                   = $11,760   

b)

Rate of return = (Dividend - Capital loss ) / Investment

                       = ($1568 - $11,760) / $70,210

                       = -$10192 / $70,210

                       = -0.145 or 14.5%

Rate of return on this stock purchase = -14.5%

Explanation

Number of stock bought = Investment / purchase price per stock

                                        = $70,210 / $50.15

                                        = 1,400 stock

Capital loss per stock = purchase price per stock - sale price per stock

                                    = $50.15 - $41.75

                                    = $8.40

Dividend = number of stocks * dividend per quarter * number of quarters

                = 1400 * $0.28 * 4

                = $1568