Questions: A customer purchases BigCo common stock at 30 per share. The stock pays a 0.30 quarterly dividend. After holding the position for one year, the customer sells the stock for 31.80 per share. What is the customer's total return? A) 10% B) 6.5% C) 4% D) 7%

Solution Steps

To calculate the customer's total return, we need to consider both the capital gain and the dividend income. The capital gain is the difference between the selling price and the purchase price. The dividend income is the total dividends received over the year. The total return is the sum of the capital gain and the dividend income, divided by the initial investment, and then converted to a percentage.

The capital gain is calculated as the difference between the selling price and the purchase price: \[ \text{Capital Gain} = \text{Selling Price} - \text{Purchase Price} = 31.8 - 30.0 = 1.8 \]

The total dividends received over the year can be calculated by multiplying the quarterly dividend by the number of quarters in a year: \[ \text{Total Dividends} = \text{Quarterly Dividend} \times 4 = 0.3 \times 4 = 1.2 \]

The total return is the sum of the capital gain and the total dividends, divided by the purchase price, expressed as a percentage: \[ \text{Total Return} = \left( \frac{\text{Capital Gain} + \text{Total Dividends}}{\text{Purchase Price}} \right) \times 100 = \left( \frac{1.8 + 1.2}{30.0} \right) \times 100 = \frac{3.0}{30.0} \times 100 = 10.0\% \]

Final Answer