Question

One year ago, Theresa purchased 600 shares of Outland Co. stock for $3,600. The stock does not pay any regular dividends, but it did pay a special dividend of $0.25 a share last week. This morning, she sold her shares for $7.25 a share. What was the total return on this investment?

A. 18.00 percent

B. 20.83 percent

C. 22.50 percent

D. 25.00 percent

E. 27.33 percent

Answer 1

The total return on Theresa's investment in Outland Co. stock is calculated by summing her capital gains and dividend income, which amounts to $900. Dividing this return by her initial investment of $3,600 and multiplying by 100 gives a total return percentage of 25%.

Step-by-step explanation:

To calculate the total return on Theresa's investment in Outland Co. stock, we need to consider both the capital gains and any dividends received. Theresa bought 600 shares at $3,600, which amounts to $6 per share, and sold them at $7.25 per share. In addition, she received a special dividend of $0.25 per share.

The capital gain per share is $7.25 - $6.00 = $1.25. The total capital gain is 600 shares * $1.25 = $750. The dividend income is 600 shares * $0.25 = $150. Therefore, the total return is the sum of the capital gain and dividend income, which is $750 + $150 = $900.

To find the total return percentage, we divide the total return by the initial investment and multiply by 100. So, the calculation is ($900 / $3,600) * 100 = 25%. Therefore, the correct answer is D. 25.00 percent.