You paid $20 for one common share of HyperTension Inc.today.What is the expected one-year holding period return if the share pays a $1.25 dividend and sells for $21.50 one year from now?

Question

Quizplus · Accepted Answer

To calculate the expected one-year holding period return, we have to consider both the dividend and the change in share price.

Dividend yield = Annual dividend / Purchase price = $1.25 / $20 = 6.25%
Capital gains yield = (Selling price - Purchase price) / Purchase price = ($21.50 - $20) / $20 = 7.5%

Expected one-year holding period return = Dividend yield + Capital gains yield = 6.25% + 7.5% = 13.75%

Therefore, choice D (13.75%) is the best answer.

You Paid $20 for One Common Share of HyperTension Inc