The following could cause the total return on an investment to be a negative rate O stock price that increases over the investment period. Therefore , O stock price that increases over the investment period is correct .
The total return on an investment is influenced by both capital gains (or losses) and income generated from dividends.
Total return is calculated as the sum of these two components.
Let's analyze each option to determine which could cause a negative total return:
Stock price that remains constant over the investment period:
In this scenario, if the stock price remains constant and there are no changes in dividends, the total return would likely be positive or zero.
The lack of capital gains might be offset by dividend income.
Increase in the annual dividend amount:
An increase in the annual dividend amount typically contributes positively to the total return.
This is because it adds to the income component, and even if the stock price doesn't change, the total return could be positive.
Stock price that declines over the investment period:
A declining stock price can lead to capital losses. If these losses are not offset by dividends, the total return could be negative.
Stock price that increases over the investment period:
An increasing stock price contributes to capital gains, which, when combined with dividends, can result in a positive total return.
Constant annual dividend amount:
If the stock price declines by an amount equal to or greater than the dividend income, the total return could be negative. This is because capital losses may outweigh the income from dividends.
Therefore, the option that could cause the total return on an investment to be a negative rate is a "stock price that declines over the investment period.