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: A)R_annual= (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄)- 1 B)R_annual= R₁ + R₂ + R₃ + R₄ C)R_annual= (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄) D)R_annual= E)R_annual= (1 + R₁)(1 + R₂)(1 + R₃)(1 + R₄)+ 1

Question

Quizplus · Accepted Answer

To calculate the annual realized return, we need to compound the quarterly returns. The formula for compounding returns is (1+r1)(1+r2)...(1+rn)-1, where r1, r2,...rn are the quarterly returns. Therefore, the correct formula for the annual realized return is (1+R₁)(1+R₂)(1+R₃)(1+R₄)-1, which is choice A. Choosing the other options will either overestimate or underestimate the annual realized return.

If a Stock Pays Dividends at the End of Each