Question

you bought a share of 6.7 percent preferred stock for $98.18 last year. the market price for your stock is now $103.17. what is your total return for last year? assume a par value of $100.

Answer 1

The total return on the 6.7 percent preferred stock investment, which included both dividend income and capital gain, was approximately 11.91% for last year.

Step-by-step explanation:

To calculate the total return on the preferred stock investment from last year, we need to consider both the dividend income and the capital gain or loss on the stock itself. The dividend income is straightforward to calculate given that we know the stock has a 6.7 percent dividend rate on its $100 par value. We would have received $6.70 in dividends ($100 * 6.7%). In terms of capital appreciation, the stock was purchased for $98.18 and increased in value to $103.17. Therefore, the capital gain is $103.17 - $98.18, which equals $4.99.

To find the total return, we add the dividend income to the capital gain, which gives us $6.70 + $4.99 = $11.69. To express this as a percentage of the initial investment, we divide the total return by the original stock price and multiply by 100.

This gives us ($11.69/$98.18) * 100 = approximately 11.91% total return for the year.