Exactly 3.5 years ago, you began your portfolio using $10,000 given to you by yo

Question

Exactly 3.5 years ago, you began your portfolio using $10,000 given to you by your grandfather. You bought 40 shares of Stock A, which was selling at $83.00. You also bought 500 shares of Stock B, selling at $3.72. The rest of your portfolio was spent on Stock C, which was currently selling at $4.00. Throughout the period, Stock A paid a $.15 dividend per share each quarter, while Stock C paid an annual dividend of $.80. Stock B paid no dividends. Today, the market values are $78.50, $4.51, and $3.95 for Stocks A, B, and C, respectively. What was your dollar return on your portfolio?

Explanation / Answer

Return= (Ending investment+Dividend-Beginning Investment)/Beginning investment

Beginning investment=$10,000 exactly 3.5 years back

Investment in A=40*83=$3,320

Investment in B=500*3.72=$1,860

Balance=$(10,000-3,320-1,860)=$4,820

Price of C then=$4

Number of shares of C bought then=4,820/4=1,205

Dividend paid by A=$0.15 per quarter.

Now in 3.5 years, there are 14 quarters.

So total dividend paid by A=0.15*14*40=$84

Dividend paid by C=$0.80 per year.

Thus, dividend paid in 3.5 years=0.80*3.5*1,205=$3,374

Total dividend received=$(84+3,374)=$3,458

Closing price of A=40*78.50=$3,140

Closing price of B=500*4.51=$2,255

Closing price of C=1,205*3.95=$4,759.75

Thus, ending value of portfolio=$(3,140+2,2,55+4,759.75)=$10,154.75

Return=(10,154.75+3,458-10,000)/10,000=0.361275 or 36.1275% over 3.5 years.

Thus average annual return=36.1275/3.5=10.3221%

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