Final answer:
Jerry's rate of return on his investment in Lerro, Inc. is 28%, calculated by combining both the capital gains and dividends received and accounting for the initial investment cost.
Step-by-step explanation:
Jerry purchased 100 shares of Lerro, Inc. common stock for $25 per share one year ago. During the year, Lerro, Inc. paid cash dividends of $2 per share. The stock is currently selling for $30 per share. To calculate Jerry's rate of return, we need to consider both the capital gains and the dividends received.
The capital gain per share is the selling price minus the purchase price, which in this case is $30 - $25 = $5 per share. Since Jerry sells all of his shares, his total capital gain is 100 shares * $5 = $500. The total dividend income is calculated as 100 shares * $2 dividends per share = $200. Combining these, the total profit from the investment is $500 (capital gain) + $200 (dividends) = $700. To find the rate of return, we divide the total profit by the initial investment cost and multiply by 100 to get a percentage. The initial investment was 100 shares * $25 = $2500. So, the rate of return is ($700 / $2500) * 100 = 28%.