Scott purchased 200 shares of Frozen Foods stock for $48 a share. Four months later, he received a dividend of $0.22 a share and also sold the shares for $42 each. What was his annualized rate of return on this investment?

Question

Quizplus · Accepted Answer

The total cost of purchasing 200 shares of Frozen Foods stock was: 
200 shares x $48/share = $9,600

After four months, Scott received a dividend payment of: 
200 shares x $0.22/share = $44

Scott sold the shares for: 
200 shares x $42/share = $8,400

The total return on the investment was therefore: 
$44 (dividend) - $9,600 (purchase price) + $8,400 (sale price) = -$156

To calculate the annualized rate of return, we need to know how long Scott held the investment. Four months is one-third of a year, so: 
Annualized rate of return = (-$156 / $9,600) x (1/1/3) = -0.3269 or -32.69%

Therefore, the closest answer choice is D) -32.90 percent.

Scott Purchased 200 Shares of Frozen Foods Stock for $48