Assume stocks A and B have had identical stock prices every day for the past 3 years.Stock A pays a dividend but Stock B does not.Which one of these statements applies to these stocks for the last 3 years?
A)Their annual total rates of return are equal.
B)Stock A's total return has been higher than Stock B's every year.
C)Stock B's capital gain has exceeded Stock A's every year.
D)Stock A's total return had to be positive every year.
E)Stock B's holding period return exceeded that of Stock A.

Question

Quizplus · Accepted Answer

Stock A's total return includes both the capital gains (which are identical for both stocks since their stock prices have moved identically) and the dividends paid. Since Stock B does not pay a dividend, its total return would only come from capital gains, making Stock A's total return higher.

Assume Stocks a and B Have Had Identical Stock Prices