1. Suppose it is now January 1, 2015, and you just sold an investment that you o

Question

1. Suppose it is now January 1, 2015, and you just sold an investment that you own for $12,500. You purchased the investment four years ago for $10,500. During the time you held the investments, it paid income equal to $1,000 each year. What is the four-year holding period yield that you earned on your investment?

2. Yesterday, Sanjay sold 1,000 shares of stock that he owned for $45 per share. When he purchased the stock two years ago, Sanjay paid $50 per share. Every three (3) months during the time that he held the stock, Sanjay received a quarterly dividend equal to $0.50 per share. A total of eight (8) dividends were received.

a. What return (yield) did Sanjay earn during the two (2) years he held the stock?

b. If the price of the stock was $45 per share one year ago, what return did Sanjay earn in each year he held the stock?

Explanation / Answer

1. Holding period return of the investment = (Sales price of Invetment - Purchase price of investment + 1000* 4)/Purchase price of invetsment = (12500 - 10500+ 4000)/10,500 = 6000/10500 = 0.5712 or 57.12%

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