Question

Q.1 Nancy Cotton bought NuTalk for $15 per share. One year later, Nancy sold the stock for $21 per share, just after she received a $0.90 cash dividend from the company. What total return did Nancy earn? What were the dividend yield and the capital gains yield?

Answer 1

Explanation:To calculate the total return, dividend yield, and capital gains yield, we first need to calculate the initial investment, final investment, and the total dividend received.

Initial Investment = Purchase price per share x Number of shares = $15 x 1 = $15

Final Investment = Selling price per share x Number of shares = $21 x 1 = $21

Total Dividend Received = Dividend per share x Number of shares = $0.90 x 1 = $0.90

Total Return = (Final Investment + Total Dividend Received - Initial Investment) / Initial Investment x 100%

Total Return = ($21 + $0.90 - $15) / $15 x 100%

Total Return = 48%

Dividend Yield = Total Dividend Received / Initial Investment x 100%

Dividend Yield = $0.90 / $15 x 100%

Dividend Yield = 6%

Capital Gains Yield = (Final Investment - Initial Investment) / Initial Investment x 100%

Capital Gains Yield = ($21 - $15) / $15 x 100%

Capital Gains Yield = 40%

Therefore, Nancy earned a total return of 48%. Her dividend yield was 6% and her capital gains yield was 40%.