Question

Assume that $17,000 was invested in the stock of Hattiesburg Healthcare Service LLC with the intention of selling after one year. The stock pays no dividends, so the entire return will be based on the price of the stock when sold. The opportunity cost of capital on the stock is 11 percent. To begin, assume that the stock sale nets $19,000. What is the dollar return on the stock investment?

a. 117.11
b. 124.45
c. 130
d. 143

Answer 1

The dollar return on the stock investment, where $17,000 was initially invested and the stock was later sold for $19,000, is $2,000. This result comes from calculating the difference between the selling price and the buying price, which solely constitutes a capital gain.

Step-by-step explanation:

The question asks for the calculation of the dollar return on a stock investment given a specific scenario. To calculate the dollar return, subtract the initial investment from the final sale price. The student invested $17,000 and sold the stock for $19,000. Thus, the dollar return is calculated as $19,000 - $17,000, which equals $2,000.

This return does not include any consideration of dividends, as the stock in question pays none, and therefore, the entire return is realized from the capital gain on the sale of the stock.

The opportunity cost of capital mentioned in the question does not factor into the dollar return calculation but is relevant for assessing the actual investment performance or making comparisons to other potential investments.