ABC stock pays a $1.80 annual dividend. The market price of the stock was $21.74, $19.83, $22.60, and $23.10 at the end of the past four years, respectively. Based on this information, what is the
Mean rate of return?

Question

Quizplus · Accepted Answer

To calculate the mean rate of return, we need to:
- Calculate the annual percentage return for each year: 
Year 1: (($1.80/$21.74) * 100) - 1 = 8.29%
Year 2: (($1.80/$19.83) * 100) - 1 = 9.07%
Year 3: (($1.80/$22.60) * 100) - 1 = 7.97%
Year 4: (($1.80/$23.10) * 100) - 1 = 7.79%

- Calculate the average of the annual percentage returns:
(8.29% + 9.07% + 7.97% + 7.79%) / 4 = 8.78%

Therefore, the mean rate of return is 8.78%, which corresponds to answer choice B (10.91% is the geometric average, which is not asked for in this question).

ABC Stock Pays a $1