Answer:
8.53%
Step-by-step explanation:
The return on investment can be calculated by using the following formula:
ROI = Net Profit / Investment * 100%
For Year 1,
Net profit is -$4 (Step1)
Investment is the opening value of the stock which is $36 per share
So by putting values, we have:
ROI = -$4 / $36 * 100% = -11.11%
For Year 2,
Net profit is $4.45 (Step1)
Investment is the opening value of the stock which is $30 per share
So by putting values, we have:
ROI = $4.45 / $30 * 100% = 28.17%
Dollar-Weighted Return on your Investment
Dollar-Weighted ROI = (28.17% + (11.11%)) / 2 = 8.53%
Step 1. Net Profit
Net profit for the Y1 = Dividend Paid + Loss on investment due to decrease in value of share
The Dividend Paid here is $2
The Loss on investment due to decrease in value of share is the difference of the initial share value and the price of the share at the end of the year which is Minus $6 ($30 Shares closing value - $36 shares opening value).
So by putting values, we have:
Net profit for the Y1 = $2 + (-$6) = -$4
Similarly,
Net profit for the Y2 = $4 Dividend + $36.45 Shares closing value - $36 shares opening value = $4.45