If a stock pays dividends at the end of each quarter,with realized returns of R₁,R₂,R₃,and R₄ each quarter,then the annual realized return is calculated as

Question

Quizplus · Accepted Answer

Since the annual realized return is the return earned over the course of one full year, we need to calculate the compounded return over all four quarters. Option B calculates the total return assuming the dividends are not reinvested but rather added to the principal. Option D adds the quarterly returns without accounting for the compounding effect of reinvesting dividends. Option C is the correct choice as it takes into account the compounding effect by subtracting 1 from the product of (1 + quarterly returns) raised to the power of 4.

If a Stock Pays Dividends at the End of Each