Suppose that you invested $2,000 using the dollar-cost-averaging aproach. Assume

Question

Suppose that you invested $2,000 using the dollar-cost-averaging aproach. Assume that on Feb-1-09, and on Feb-1-10, you purchased $1,000 worth of stock. You then held the shares until they were sold on Feb-1-2013 (assume you received the divided in all these years and dividends were reinvested). What is the copound annual return on your investment over the holding perod? Hint:Create a spreadsheet of your cash flows and solve for the IRR. Stock proce and dividends are given belovw

Year Stock Price Annual Dividends Feb-1-09 50 Feb-1-10 40 0.4 Feb-1-11 30 0.5 Feb-1-12 130 0.6 Feb-1-13 80 0.7

Explanation / Answer

copound annual return on your investment over the holding perod = 19.17%

Year Investment outflow Stock Price Annual Dividends Number of stock purchased Cumulative number of stocks Dividend earned (inflow) Amount from sale of stocks(inflow) Net cash flow =(inflow-outflow) Feb-1-09 1000 50 20 20 -1000 Feb-1-10 1000 40 0.4 25 45 8 -992 Feb-1-11 0 30 0.5 45 22.5 22.5 Feb-1-12 0 130 0.6 45 27 27 Feb-1-13 0 80 0.7 45 31.5 3600 3631.5 IRR 19.17%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.