Question

Two years ago, you purchased 100 shares of General Mills Corporation. Your purchase price was $53 a share, plus a total commission of $34 to purchase the stock. During the last two years, you have received the following dividend amounts: $1.90 per share for the first year and $2.03 per share the second year. Also, assume that at the end of two years, you sold your General Mills stock for $59 a share minus a total commission of $41 to sell the stock.

Required:
a. Calculate the dividend yield for your General Mills stock at the time you purchased it.
b. Calculate the dividend yield for your General Mills stock at the time you sold it.
c. Calculate the total return for your General Mills investment when you sold the stock at the end of two years.
d. Calculate the annualized holding period yield for your General Mills investment at the end of the two-year period.

Answer 1

Answer:

Purchase Price $53 * 100 = $5300

Commission =                       $53  

Total Cost                              $5353

D1 = $1.90 * 100 = 190

D2 = $2.03 * 100 = 203

Sale value of shares $59*100 $5900

Less: Commission                    $41    

Net sale value                          $5859

a. Dividend yield at the time of purchase:

= D1/P0

= $1.90/$53

= 3.59%

b. Dividend yield at the time of sale:

= D2/P1

= $2.03/$41

= 4.95%

c. Total Return for 2 years = $5859 + $190 + $203 - $5353

Total Return for 2 years = $899

d. Annualized holding period yield = ($899/$5353) * 1/2

Annualized holding period yield = 0.0839716

Annualized holding period yield = 8.40%