Question

At the beginning of last year, you invested $4,400 in 80 shares of the Chang Corporation. During the year, Chang paid dividends of $6 per share. At the end of the year, you sold the 80 shares for $67 a share. Compute your total HPY on these shares and indicate how much was due to the price change and how much was due to the dividend income. Do not round intermediate calculations. Round your answers to one decimal place.

HPY (Total): %
HPY (Price Increase Alone): %
HPY (Dividends): %

Answer 1

To calculate the total HPY on the Chang Corporation shares, we sum the dividend income and the capital gain and then divide by the original investment to get 32.7%. HPY from the price change alone is 21.8%, and HPY from dividends is 10.9%.

Step-by-step explanation:

To compute the total holding period yield (HPY) on the shares, we first need to calculate the dividend income and the capital gain.

The dividend income is calculated by multiplying the dividend per share by the number of shares owned: $6 per share × 80 shares = $480.

The capital gain is the difference between the selling price and the purchase price. The shares were sold at $67 per share, which results in a total selling price of $67 per share × 80 shares = $5,360. The original investment was $4,400, so the capital gain is $5,360 - $4,400 = $960.

To find the total HPY, we add the dividend income and the capital gain, then divide by the original investment: ($960 capital gain + $480 in dividends) / $4,400 original investment = 0.3273, or 32.7% when expressed as a percentage.

The HPY due to the price change alone is the capital gain divided by the original investment: $960 / $4,400 = 0.2182, or 21.8%.

The HPY due to dividends is the dividend income divided by the original investment: $480 / $4,400 = 0.1091, or 10.9%.