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Chapter 10. Risk and return - Assets and portfolios

Chapter 10. Risk and return - Assets and portfolios - Risk...

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Risk and return - Assets and Portfolios Topic 11 Finance 357

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Dollar Returns As we have discussed, returns from stocks come in two ways: Capital Gains and Dividends A stock pays out a dividend of \$1.50 per share during the year. If you owned 100 shares, your dollar gain would be 100 x \$1.50 = \$150.00 The stock started the year selling for 46.77 and ended the year selling for \$50.25. For your 100 shares, your dollar gain would be 100 x (\$50.25 – \$46.77) = \$348.00 If we sell the stock at the end of the year, then
Percentage Returns Percentage returns are a much more convenient way to summarize information about returns. The dividend yield formula should look familiar. Capital gains and losses are simply calculated Combining the two formulas gives the total return of an investment

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An example A stock begins the year with a price of \$25 per share and ends the year at \$35 per share. During the year, it paid a \$2 dividend per share. What are its dividend yield, its capital gain and its total return for the year?
Example Answer Using the formula we just developed

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Chapter 10. Risk and return - Assets and portfolios - Risk...

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