A stock sold for $25 at the beginning of the year. The end of year stock price was $25.50. What is the amount of the annual dividend if the total return for the year was 8.5 percent?
A)$1.23
B)$1.50
C)$1.63
D)$1.81
E)$2.12

Question

Quizplus · Accepted Answer

The total return includes both the dividend yield and the capital gain. The capital gain is the difference between the end of year stock price and the beginning of the year stock price, which is $25.50 - $25 = $0.50. The total return on a $25 investment that yields an 8.5% return is $25 * 0.085 = $2.125. Since part of this return comes from the capital gain ($0.50), the dividend amount is $2.125 - $0.50 = $1.625, which rounds to $1.63, making option C correct.

A Stock Sold for $25 at the Beginning of the Year