Calculate the stock's total return if the company announces that an important patent filing has been granted sooner than expected and will earn the company 5% more in return.
A)7.95%
B)9.95%
C)11.55%
D)7.90%
E)9.35%

Question

Quizplus · Accepted Answer

To calculate the total return, we need to add the percentage change in the stock price and the percentage from dividends or other sources. Since there is no information about dividends or other sources, we assume the 5% increase in return is referring to the stock price.

The formula to calculate the total return is: 
Total return = Percentage change in stock price + Percentage from dividends or other sources

If the stock increases by 5%, the new price will be $52.50 (50 x 1.05).

Percentage change in stock price = (New price - Old price) / Old price x 100%
Percentage change in stock price = (52.50 - 50) / 50 x 100%
Percentage change in stock price = 5%

Therefore, the total return is 5% (from the increase in stock price) + 4.95% (the original return of 6% from the question) = 9.95%.

The best choice is B because this is the only option that matches the correct calculation.

Calculate the Stock's Total Return If the Company Announces That