Question

Two years ago, you purchased 100 shares of General Mills Corporation. Your purchase price was $58 a share, plus a total commission of $29 to purchase the stock. During the last two years, you have received the following dividend amounts: $2.55 per share for the first year and $2.73 per share the second year. Also, assume that at the end of two years, you sold your General Mills stock for $62 a share minus a total commission of $37 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.)

Answer 1

To calculate the dividend yield, divide the annual dividend received per share ($2.55) by the cost basis per share ($58.29), which includes the purchase price and the commission paid. Then multiply the result by 100 to get a percentage. The resulting dividend yield at the time of purchase is 4.37%.

Step-by-step explanation:

To calculate the dividend yield for General Mills stock at the time of purchase, you would use the formula for dividend yield, which is the annual dividends per share divided by the price per share. Since you've received $2.55 per share in the first year after purchase, this amount will be used for the yield calculation. The purchase price per share is $58, but we also need to consider the commission paid, which was a total of $29 for all 100 shares. Therefore, to find the cost basis per share, you add the total commission to the initial stock cost and then divide by the number of shares. Therefore, the cost basis comes out to be $58.29 per share ($58 + ($29/100)).

The dividend yield is then calculated as follows:

Dividend Yield = (Annual Dividend per Share / Purchase Price per Share) × 100

So, the dividend yield at the time of purchase would be:

Dividend Yield = ($2.55 / $58.29) × 100 = 4.37%

Hence, the dividend yield for your General Mills stock at the time you purchased it was 4.37%, rounded to two decimal places.