. You purchased 1,000 shares of stock for $347 per share exactly one year ago. D

Question

. You purchased 1,000 shares of stock for $347 per share exactly one year ago. During the year, the stock paid a $2.60 dividend per share and the current stock price is $301 per share. The inflation rate the last year was 2%. Answer the following (showing all work):

            (a) Calculate the actual return (also called percentage return) on your investment over the last year.

            (b) Calculate (i) the dividend yield and (ii) the percentage capital gain.

            (c) Calculate the real rate of return on the stock.

Explanation / Answer

(a) Actual return = ($2.60 + $301 - $347) / $347 * 100%

= -12.51%

(b)

(i) Dividend yiels = $2.60 / $301 * 100%

= 0.86%

(ii) Capital gain percentage = ($301 - $347) / $347 * 100%

= -13.26%

(c) Real rate of return = -12.51% - 2%

= -14.51%

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