5. Presented below is the end-of-year common share price (Pt), the beginning-of-
ID: 2482297 • Letter: 5
Question
5. Presented below is the end-of-year common share price (Pt), the beginning-of-year common share price (Pt-1), and the annual dividend (Dt) for PepsiCo and Coca Cola:
Pt
Pt-1
Dt
PepsiCo
$43.38
$31.53
$0.68
Coca Cola
$64.19
$49.78
$1.00
A. Which investment would have provided the better return if you had purchased 10 shares of stock?
B. As an investor, are you part of the supply of capital or demand for capital side of the capital market? Explain.
Pt
Pt-1
Dt
PepsiCo
$43.38
$31.53
$0.68
Coca Cola
$64.19
$49.78
$1.00
Explanation / Answer
Pepsi Capital Gain= Ending price – opening price= 43.38-31.53= 11.85
Dividends= .68
Return= (Capital gain + dividend)/Share opening price
= 12.53/31.53= 39.73%
Coca Cola Capital Gain= Ending price – opening price= 64.19-49.78= 14.41
Dividends= 1
Return= (Capital gain + dividend)/Share opening price
= 15.41/49.78= 30.95%
Pepsi gives better return
b) As an investor you are part of supply of capital. This is because you invest your capital in company for desired rate of returns, which company utilizes to fulfill capital requirements.
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