Question

Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent)

a) 32%

b) 16%

c) 12%

d) 40%

Answer 1

The rate of return for owning Serox in the most recent year is 12%.

Step-by-step explanation:

Rate of return

To calculate the rate of return for owning Serox in the most recent year, you can use the formula:

1. Calculate the dividend yield by dividing the dividend per year by the stock price.
2. Calculate the capital gain by subtracting the initial stock price from the current stock price.
3. Calculate the total return by adding the dividend yield and the capital gain.
4. Finally, divide the total return by the initial stock price, and multiply by 100 to get the rate of return as a percentage.

Here's how you can apply this formula to find the rate of return for Serox:

1. Dividend yield = $1.10 / $25 = 0.044.
2. Capital gain = $28 - $25 = $3.
3. Total return = 0.044 + $3 = $3.044.
4. Rate of return = ($3.044 / $25) * 100 = 12.176%, which rounds to 12%.