Question

You purchase 100 shares of stock for $40 a share. The stock pays a $2 per share dividend at year-end. a. What is the rate of return on your investment if the end-of-year stock price is (i) $38; (ii) $40; (iii) $42? (Leave no cells blank - be certain to enter "0" wherever required. Enter your answers as a whole percent.)

Answer 1

a. 5% b. 5% c. 5%

Explanation: Stocks are the securities issued by the companies to raise capital in securities markets. Dividend is the return that investors get for bearing the risk of ownership.

As we know that,

`Return=\:(dividend)/(market\:price)`

`Return=\:(2)/(38)=\:5.26\%=\:5\%\:in\:whole`

`Return=\:(2)/(40)=\:5\%=\:5\%\:in\:whole`

`Return=\:(2)/(42)=\:4.76\%=\:5\%\:in\:whole`