Question

At the beginning of last year an investor purchased ABC Corporation at $100 per share. During the year, the firm made a 4 for 1 split, and then paid dividends of $1.50 per share. At the end of the year, the investor sold the shares at $26 per share. What is the rate of return?

Answer 1

Answer:

10%

Explanation:

Cost of investment = $100

Total dividend = 4 for 1 split = 4*$1.5 = $6.00  

Total sales proceed = $26*4 = $104

Total return = [(Sale price + Dividend - Cost of purchase) / Cost of purchase] * 100

Total return = ($104 + $6 - $100) / 100

Total return = 10 / 100

Total return = 0.10

Total return = 10%

So, the rate of return is 10%