Question

Two years ago, you purchased 100 shares of General Mills Corporation. Your purchase price was $54 a share, plus a total commission of $35 to purchase the stock. During the last two years, you have received the following dividend amounts: $1.80 per share for the first year and $1.93 per share the second year. Also, assume that at the end of two years, you sold your General Mills stock for $59 a share minus a total commission of $44 to sell the stock.

(a) Calculate the dividend yield for your General Mills stock at the time you purchased it. (Enter your answer as a percent rounded to 2 decimal places.) Dividend yield at purchase 58.33%
(b) Calculate the dividend yield for your General Mills stock at the time you sold it. (Enter your answer as a percent rounded to 2 decimal places.) Dividend yield at sale %
(c) Calculate the total return for your General Mills investment when you sold the stock at the end of two years. (Do not round intermediate calculations. Round your final answer to the nearest whole number.) Total return
(d) Calculate the annualized holding period yield for your General Mills investment at the end of the two-year period. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Annualized holding period yield %

Answer 1

The initial dividend yield calculation presented seems to be incorrect. For an accurate analysis, we need to recalculate the dividend yield at purchase and sale, total return, and the annualized holding period yield using the given share prices, dividends, and commissions to understand the investment performance of the General Mills stock over the two-year period.

Step-by-step explanation:

To calculate the dividend yield at the time of purchase, we divide the dividend per share by the purchase price per share. However, the provided dividend yield at purchase (58.33%) appears to be a mistake as it is not typical for general stock investments and the calculation does not match the given details. For the General Mills stock purchased at $54 per share, if we received $1.80 per share in dividends the first year, the correct calculation of the dividend yield at purchase would be ($1.80 / $54) × 100, which does not yield 58.33%.

To address part (b), we would calculate the dividend yield at sale using the dividend received in the second year, which is $1.93 per share, and the sale price per share before commission, which is $59. The calculation would be ($1.93 / $59) × 100.

For part (c), the total return on the General Mills investment includes capital gains from the sale of the stock, minus the purchase and sale commissions, plus the dividends received. The calculation would sum the capital gain (100 shares × ($59 - $54)) minus the total commissions ($35 + $44) plus total dividends (100 shares × ($1.80 + $1.93)).

Last, part (d) asks for the annualized holding period yield. It can be calculated by finding the total percentage return (total return from part (c) divided by the initial investment) and then annualizing this return over the two-year period using the formula for annualizing returns, which is [(1 + total return)^(1/years) - 1] × 100.