Tom purchased 100 shares of Dalia Co stock at a price of 127

Tom purchased 100 shares of Dalia Co. stock at a price of $127.32 four months ago. He sold all stocks today for $125.23. During the year the stock paid dividends of $5.99 per share What is Tom\'s effective annual rate? Round the answers to two decimal places in percentage form. (Write the percentage sign in the rI

Solution

Answer:

Given:

Holding period = 4 months

Purchase price of stock = $127.32

Selling price of stock = $125.23

Dividend received per share = $5.99

Total earnings in 4 months = (Sale price per share - Purchase price per share + Dividend per share) * number of shares = ($125.23 - $127.32 + $5.99) * 100 = $390

Holding period (4 months) Return = Earnings /Purchase value = $390 / ($127.32 *100) = 3.06315%

Holding period in years = 4/12 = 1/3

Effective annual rate = (1 + Holding period Return) ^{1/ holding period in years} - 1

= (1 + 3.06315%)^{1 /(1/3)}- 1

= 9.47%