Question

Last year Marla purchased 100 shares of stock for $8 per share. She paid a flat $75 to purchase the shares. Since making her purchase, she has received $200 in dividends. Marla is concerned that the stock price will fall below its current FMV of $7. Calculate her holdingperiod return if she sells today and pays a $75 commission.

Answer 1

For Marla,

Number of shares purchased is 100 @ $8 per share

Initial Position = 100 * 8 = $800

Dividends Received = $200

Brokerage Paid = 75 + 75 = $150

Current Value of Stock = $7

Current Position for 100 shares @ $7 per share

Current Position = $700

Holding Period Return = Profit/Initial Investment

Holding Period Return = ((700 - 800) - 150 + 200)/800

Holding Period Return = -6.25%