1. You made the following direct investment through a stock company (such as McD

Question

1. You made the following direct investment through a stock company (such as McDonald's). You were happy to avoid any brokerage fee. Calculate your total percentage return using the following variables:

a.Use the following variables and your financial calculator and TVM keystrokes to determine the average annual percentage return on your investment.

Initial Investment = $7,500
Dividends received = $75 per year
Value of investment when sold = $15,000
Number of years held = 8

2.You purchased 100 shares of AT&T stock for $60 per share. Each year you received a cash dividend of $0.80 (80 cents) per share. After seven years you sold your shares for $100 per share. Brokerage fees were 5% to buy and sell the stock.

a. What is your total dollar value return?

b. Brokerage fees were 5% to buy and sell the stock. What is your total percentage return?

c Brokerage fees were 5% to buy and sell the stock. How much money did you pay the broker (total commission to buy and to sell)?

Explanation / Answer

1) Returns = (15000 - 7500 + 75*8)/7500 = 108%

PV = -7500, PMT = 75, NPER = 8, FV = 15000
Compute Rate
R = 9.81%

2) Initial Investment = 60*100 = 6,000
Selling Value = 100*100 = 10,000
Dividends/PMT = 0.8*100 = 80
NPER = 8
Total Dollar Value Return = 10,000 - 6000 + 80*7 - 16,000*0.05 = 3,760
Total % Return = 3760/(6000*1.05) = 59.68%
Brokerage Fees = 16,000*0.05 = 800

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