Over the past four years a stock had prices of $12.78, $13.34, $16.30, and $15.40, respectively. The stock pays an annual dividend of $.50 a share. What is the geometric average return on this stock?

Question

Quizplus · Accepted Answer

First, we need to calculate the total return of the stock over the four-year period, including both price appreciation and dividends.

Year 1: $12.78 + $0.50 = $13.28
Year 2: $13.34 + $0.50 = $13.84
Year 3: $16.30 + $0.50 = $16.80
Year 4: $15.40 + $0.50 = $15.90

Total return = ($15.90/$13.28)^(1/4) - 1 = 0.0998 or 9.98%

Therefore, choice B is the correct answer.

Over the Past Four Years a Stock Had Prices of $12.78