At the beginning of the year you purchased 100 shares of common stock for $15. One year later you sell it for $17. It paid a quarterly dividend for 25 cents per share during the time you had it. What is your total rate of return on this stock?
At the beginning of the year you purchased 100 shares of common stock for $15. One year later you sell it for $17. It paid a quarterly dividend for 25 cents per share during the time you had it. What is your total rate of return on this stock?
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If you really paid just $15 for all 100 shares, and then sold them for $17, then your total cash in would be $17 + (100 X 4 X $0.25) = $117 and your cash out would be just $15, so your return would be:
($117 – $15) / $15 = 780%, which would make you a Wizard on Wall Street.
But if you really meant that you paid $15 a share, then your cost would be:
100 X $15 = $1,500
Your dividends earned would be:
100 X 4 X $0.25 = $100
Your sale price for the shares would be:
100 X $17 = $1,700
So the total amount of cash in would be ($100 + $1,700) = $1,800
The total amount of cash out would be $1,500.
Your total gain, and rate of return would be calculated as:
($1,800 – $1,500) / $1,500 = 20%
So your total rate of return under this scenario is 20%, which is still pretty good.