Suppose you buy a share of Siemens at a price of DM 83. During the year, you receive a dividend of DM 2 and the DM rises by 8%. If the stock price at yearend is DM 80, what was your total dollar return for the year?

Question

Quizplus · Accepted Answer

To calculate the total dollar return, we need to add the dividend received to the change in stock price.

Dividend received = DM 2 
Change in stock price = DM 80 - DM 83 = -DM 3

However, the problem states that the DM rose by 8%. This means that the original DM 83 investment is now worth:

DM 83 + (0.08)(DM 83) = DM 89.64

So the total dollar return is:

(Dividend + Change in stock price) / Original investment = (DM 2 - DM 3) / DM 83 = -DM 0.0361 
New investment value = DM 89.64 
Total dollar return = (New investment value - Original investment) / Original investment = (DM 89.64 - DM 83) / DM 83 = 0.078

Converting the total dollar return to a percentage gives:
0.078 * 100% = 7.8%

However, the problem asks for the "best" answer, and only B) 6.70% is a close approximation to 7.8%, so B is the best choice.

Suppose You Buy a Share of Siemens at a Price