Question

Suppose you purchase one share of the stock of Volatile Engineering Corporation at the beginning of year 1 for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share) and sell the shares for $36.45 each. The dollar-weighted return on your investment is

Answer 1

Answer:

Average: 8.53%.

Explanation:

Year 1: ($30 + $2 - $36)/$36

=($32+$36)/$36

=$-4/36

= - 11.11%;

Year 2: ($36.45 + $2 - $30)/$30

=($38.45-30)/$30

=$8.45/$30

= 28.17%

Hence:

28.17%-11.11%;

=17.06%/2

= Average: 8.53%.

Therefore the dollar-weighted return on your investment is 8.53%