Questions: Christy purchased 100 shares of Good Idea stock for 48 last year. Yesterday she sold the stock for 45. If she received 4 in dividends during the time she held the security, what is her holding period return (round % to 2 decimals)? a. 208 % b. 8.30 % c. 14.60 % d. 6.30 %

Solution Steps

To calculate the holding period return, we need to determine the total return from the investment and then divide it by the initial investment. The total return includes both the capital gain (or loss) and the dividends received. The formula for holding period return is:

\[ \text{Holding Period Return} = \left( \frac{\text{Ending Price} - \text{Beginning Price} + \text{Dividends}}{\text{Beginning Price}} \right) \times 100 \]

Christy purchased 100 shares of Good Idea stock at a price of \$48 per share. She sold the stock for \$45 per share and received \$4 in dividends during the holding period.

The total return from the investment includes both the capital loss and the dividends received. The capital loss is calculated as the difference between the ending price and the beginning price:

\[ \text{Capital Loss} = \text{Ending Price} - \text{Beginning Price} = 45 - 48 = -3 \]

The total return is then:

\[ \text{Total Return} = \text{Capital Loss} + \text{Dividends} = -3 + 4 = 1 \]

The holding period return is calculated by dividing the total return by the beginning price and then multiplying by 100 to convert it to a percentage:

\[ \text{Holding Period Return} = \left( \frac{\text{Total Return}}{\text{Beginning Price}} \right) \times 100 = \left( \frac{1}{48} \right) \times 100 \approx 2.0833 \]

Round the holding period return to two decimal places:

\[ \text{Holding Period Return} \approx 2.08\% \]

Final Answer