You purchased 1,000 shares of stock ABC for $34 per share and 300 shares of stoc
ID: 2758841 • Letter: Y
Question
You purchased 1,000 shares of stock ABC for $34 per share and 300 shares of stock XYZ for $240 per share exactly one year ago. During the year, stock ABC paid a $1.60 dividend per share and XYZ did not pay a dividend. The current stock prices are ABC=$40 per share and XYZ = $180 per share. Answer the following (showing all work):
(a) Calculate the actual return (also called percentage return) on your investment in (i) ABC, (ii) XYZ and (iii) the portfolio over the last year.
(b) Calculate (i) the dividend yield and (ii) the percentage capital gain for the portfolio.
(c) Calculate the real rate of return on the portfolio if the inflation rate was 2%.
Explanation / Answer
Part a)
Total investment in ABC= 34 x 1000
= 34,000
Total investment in XYZ = 240 x 300
= 72,000
Dividend received on ABC= 100 x 1.60
= 160
= (40 +1.60 -34)/ 34
= 22.35%
= ( 22.35% x 34000 – 25% x 72000)/(34000+72000)
= -10,401/ 106,000
=-9.81%
Part B
Dividend yield =dividend / begin price
Stock ABC = 1.60 / 34
= 4.71%
Stock XYZ= 0/240
= 0%
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