Cousin Eddie purchased 250 shares of WES stock for $10,000. One year later ...

By Investopedia Staff AAA
Q:
Cousin Eddie purchased 250 shares of WES stock for $10,000. One year later, he sold the 250 shares for $10,750. During the time he held the stock, he received a dividend payment of $1.00 per share, inflation was 3% for the year. He asks you to help him determine his total return. Which of the following best describes the calculation that you will use?
a) Capital appreciation of stock plus dividends received, divided by initial investment
b) Capital appreciation of stock less inflation rate, divided by initial investment
c) Capital appreciation of stock plus dividend received less inflation rate, divided by initial investment
d) Capital appreciation of stock plus dividends received, divided by sale amount of investment
A:

The correct answer is a)
For equity investments, the total return is:

Capital appreciation + dividends received
Initial Investment

In the example, the capital appreciation is $750 ($10,750-$10,000), the dividend received is $250 ($1.00 multiplied by 250 shares), for a total gain of $1,000. You then divide your total gain ($1,000) by the initial investment ($10,000) for a total return of 10%.


RELATED FAQS

  1. Sometimes investment banking firms allocate shares of hot issues to the personal ...

    The correct answer is a) Spinning is the act of selling hot issues to the personal accounts of corporate officers which in ...
  2. Donald has been putting aside money for his retirement into a Roth IRA for six years.  Although ...

    The correct answer is A) In a Roth IRA, there is no required distribution date as there is in a traditional IRA.
  3. A 7-year, 6% coupon callable bond is currently trading at 96.25.  The ...

    Free info on financial certification exams including study guides, exam questions, and much more!
  4. According to SEC Release IA-1092, which of the following would NOT qualify as an ...

    The correct answer is C). SEC Release IA-1092 considers financial planners, pension consultants and sports and entertainment ...
RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

You May Also Like

Related Articles
  1. Professionals

    Should You Add A Securities License ...

Trading Center