Question

One year ago Mike bought 100 ordinary shares of Dallas Company for $53 per share. He has just received an annual dividend of $1.45 per share and the shares are currently selling for $60 per share. Rounded to the nearest 10th of a percent, what rate of return has Mike earned on the shares over the past year?

(A) 11.7 per cent
(B) 15.9 per cent
(C) 14.1 per cent
(D) 13.2 per cent

Answer 1

Dividend Income:
Mike received an annual dividend of $1.45 per share. Since he bought 100 shares, his total dividend income is:
Total dividend income = $1.45 * 100 = $145
Change in Share Price:
Mike bought the shares for $53 per share, and they are currently selling for $60 per share. The change in share price is:
Change in share price = Current share price - Purchase share price
= $60 - $53
= $7
Calculate the rate of return:
The rate of return is calculated by dividing the total return by the initial investment and then multiplying by 100 to get a percentage. The total return is the sum of the dividend income and the change in share price.
Total return = Dividend income + Change in share price
= $145 + $7
= $152

Rate of return = (Total return / Initial investment) * 100
= ($152 / ($53 * 100)) * 100
= ($152 / $5300) * 100
= 0.0286792 * 100
= 2.87%

Therefore, rounded to the nearest 10th of a percent, Mike has earned a rate of return of 2.9% on the shares over the past year.