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

The formula to calculate the annual realized return for a stock that pays dividends at the end of each quarter is the compounding of the quarterly returns. Therefore, we should use the formula R_annual= (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄)- 1. Choice B is incorrect because it merely adds up the quarterly returns without factoring in the compounding effect. Choice C is incorrect because it calculates the total return without subtracting one, which would give the cumulative return instead of the realized annual return. Choice D is not a valid answer as it is an incomplete or incorrect equation.

If a Stock Pays Dividends at the End of Each