4 You bought CocaCola stock 3 years ago for 45share It paid

4. You bought Coca-Cola stock 3 years ago for $45/share. It paid dividends at the end of the first, second and third years of $2/share, and you sold it for $50/share. Assuming you could reinvest the dividends at 2% per year, what is the annualized HPR on Coca-Cola stock over this 3-year period?

Solution

Dividend at Year 1 , 2 and 3 = 2per share
Th value of Dividends at end of year 3 if reibnvested a a rate of 2% per year
= 2 * ( 1+2%)² + 2 * ( 1+2%)¹ + 2 = 6.1208

HPR = [(Final value - Initial Value + Value of Dividend at year 3)/Initial Value + 1]^1/n - 1
[(50 -45 + 6.1208)/45 + 1]^1/3 - 1 = 7.64%

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