Question

Sergey bought two shares of a stock at $22 each in early January 2018. At the end of a year he earned $2 dividend on each one. By year-end 2018 the price had risen to $22.50. In early January (after the holidays) he bought another share at that price. At year-end 2019 the price was $22.80 and the dividend of $2 a share was again paid out. What was the dollar weighted return on his investment?

Answer 1

Answer: 10.79%

Step-by-step explanation:

Based on the information given, the return in year 1 will be:

= (22.5 + 2)/21 - 1

= 1.1136 - 1

= 0.1136

= 11.36%

The return in year 2 will be:

= (22.8 + 2)/22.5 - 1

= 1.1022 - 1

= 0.1022

= 10.22%

Therefore weighted return will be:

= (11.36% + 10.22%)/2

= 21.58%/2

= 10.79%