You buy a stock for $40. During the next year, it pays a dividend of $2, and its price increases to $ 44. Calculate the total dollar and total percentage return and show that each of these is the sum of the dividend and capital gain components.
Answer to relevant QuestionsWhy do investors need to pay attention to real returns, as well as nominal returns? Notice in Table that the stocks with the lowest standard deviations are Anheuser-Busch, Coca-Cola, Archer Daniels Midland, and Wendy’s. Is this a surprise? A financial adviser claims that a particular stock earned a total return of 10 percent last year. During the year the stock price rose from $30 to $32.50. What dividend did the stock pay? Contrast the historical approach to estimating expected returns with the probabilistic approach. What are the desirable characteristics of a capital budgeting decision- making tool?
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