Concept explainers
(a).
To calculate:
Dividend yield at the time of purchase of share.
Introduction: The Dividend Yield is the annual dividend amount generated by an investment divided by the investment’s current price per share.
Answer to Problem 9FPP
Solution:
Dividend yield at the time of purchase is 2.84%.
Explanation of Solution
Given,
Purchase price per share is $33
Commission paid on purchase $29
Dividend per share received in 1st year $0.94
Dividend per share received in 2nd year $1.12
Selling price per share is $40
Commission paid on sale $34
Formula to calculate dividend yield is given below:
Substitute $33 for Price per share and $0.94 for annual dividend amount.
Hence, dividend yield at the time of purchase of share is 2.84%.
(b).
To calculate:
Dividend yield at the time of sale of share.
Introduction: The Dividend Yield is the annual dividend amount generated by an investment divided by the investment’s current price per share.
Answer to Problem 9FPP
Solution:
Dividend yield at the time of sale of share is 2.8%.
Explanation of Solution
Given,
Purchase price per share is $33
Commission paid on purchase $29
Dividend per share received in 1st year $0.94
Dividend per share received in 2nd year $1.12
Selling price per share is $40
Commission paid on sale $34
Formula to calculate dividend yield is given below:
Substitute $40 for Price per share and $1.12 for annual dividend amount.
Hence, dividend yield at the time of sale of share is 2.8%.
(c).
To calculate:
Total
Introduction: Total return is the amount which an investor receives over the amount he invests. It may include dividend or
Answer to Problem 9FPP
Solution:
The total return would be $843.
Explanation of Solution
Given,
Number of shares 100
Purchase price per share is $33
Commission paid on purchase $29
Dividend per share received in 1st year $0.94
Dividend per share received in 2nd year $1.12
Selling price per share is $40
Commission paid on sale $34
Formula to calculate total purchase price is given below:
Substitute, $33 for purchase price per share, 100 for number of share and $29 for commission paid in the above formula.
Hence, total purchase price is $3,329.
Formula to calculate total selling price is given below:
Substitute, $40 for selling price per share, 100 for number of share and $34 for commission paid in the above formula.
Hence, total selling price is $3,966.
Formula to calculate capital gain is given below:
Substitute $3,966 for total selling price and $3,329 for total purchase price.
Hence, capital gain is $637.
Formula to calculate Total dividend received is given below:
Substitute $0.94 for 1st year dividend and $1.12 for 2nd year dividend and 100 for number of share.
Hence total dividend is $206.
Formula to calculate Total return is given below:
Substitute $637 for capital gain and $206 for dividend received.
Hence, total return would be $843.
(d).
To calculate:
Holding period yield at the end of two years
Introduction: A yield calculation that takes into account the total return, the original investment and the time investment is held.
Answer to Problem 9FPP
Solution:
Annualized holding period yield is 12.66%.
Explanation of Solution
Given,
Purchase price per share is $33
Commission paid on purchase $29
Dividend per share received in 1st year $0.94
Dividend per share received in 2nd year $1.12
Selling price per share is $40
Commission paid on sale $34
Formula to calculate holding period yield is given below:
Substitute $843 for total return, $3,329 for original investment and 2 for number of years.
Hence, Annualized holding period yield is 12.66%.
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Chapter 14 Solutions
Personal Finance (The Mcgaw-hill/Irwin Series in Finance, Insurance, and Real Estate)
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