Question

Francis purchased a stock one year ago for $20, and it is now worth $24. The stock paid a dividend of $3 during the year. What was the stock's rate of return from capital appreciation during the year?

A) 17%
B) 20%
C) 29%
D) 35%

Answer 1

The rate of return from capital appreciation for the stock purchased by Francis is calculated to be 20%, which only considers the increase in stock price from $20 to $24 over the course of one year.

Step-by-step explanation:

The student's question revolves around calculating the rate of return from capital appreciation on a stock investment over a period of one year. To determine this, we must consider the increase in the stock's price independent of any dividends received. Initially, the stock was purchased at $20 and later valued at $24. This increase of $4 represents the capital gain.

The rate of return from capital appreciation is computed by dividing the capital gain by the original purchase price and then multiplying by 100 to get a percentage. Thus, the rate of return from capital appreciation is ($4 / $20) * 100, equating to a 20% return from appreciation alone. Dividends are not included in this calculation as they represent a different component of the total return on stock investments.