Question

Josh purchased 100 shares of XOM for $76.63 per share at the beginning of 2007. He received dividends per share of $1.37 (2007), $1.55 (2008), $1.66 (2009), $1.74 (2010), $1.85 (2011). At the end of 2011, just after receiving the last dividend, he sold the stock for $84.76. What was his average annual rate of return form both dividends and capital gains?

Answer 1

Answer:

Average annual rate of return = 4.3%

Explanation:

The return on a stock is the sum of the capital gains(loss) plus the dividends earned.

Capital gain is the difference between he value of the stocks when sold and the cost of the shares when purchased.

Total shareholders Return =  

(Capital gain/ loss + dividend )/purchase price × 100

So we can apply this to the formula:

Total dividend earned= (1.37 × 100) + ($1.55 × 100) + ($1.66× 100)+ ($1.74 × 100) +($1.85  ×100)  = 817

Capital gain= (84.76-76.63)*100 = 813

Total return (%) = (813+817)/(76.63*100)  × 100= 21.3%

Average Annual return = Return over investment period /Number of years

                                       = 21.3/5 = 4.3%

Average annual rate of return = 4.3%