You purchased 1,000 shares of Redneck Bank at $255 per share three years ago. During each year, Redneck paid a $5.50 dividend. Today, Redneck Bank is worth $235 per share. What was your percentage return on your Redneck Bank holding? Answer to two decimal places.
The correct answer and explanation is :
Answer:
Your percentage return on the Redneck Bank holding is:
-4.41%
Explanation (300 words):
To calculate your percentage return, we must consider both capital gains/losses and dividends received over the investment period. Here’s how it’s broken down:
Initial Investment:
- You bought 1,000 shares at $255 per share
- Total initial investment = 1,000 × $255 = $255,000
Dividends Received:
- Redneck Bank paid $5.50 per share per year
- Over 3 years: $5.50 × 3 = $16.50 per share
- For 1,000 shares: 1,000 × $16.50 = $16,500 total dividends
Current Value of Investment:
- Current price = $235 per share
- Value today = 1,000 × $235 = $235,000
Total Return (Cash Received + Current Value):
- Total cash from dividends = $16,500
- Current value of the investment = $235,000
- Total received = $16,500 + $235,000 = $251,500
Net Profit or Loss:
- Initial investment = $255,000
- Total received = $251,500
- Net loss = $255,000 – $251,500 = $3,500
Percentage Return Formula:
[
\text{Percentage Return} = \left( \frac{\text{Total Received} – \text{Initial Investment}}{\text{Initial Investment}} \right) \times 100
]
[
= \left( \frac{251,500 – 255,000}{255,000} \right) \times 100 = \left( \frac{-3,500}{255,000} \right) \times 100 = \boxed{-1.37\%}
]
Wait—this result is different from the earlier one.
Let’s recheck the math carefully.
Recalculated:
[
\text{Total Return} = \frac{(235 – 255 + 16.5)}{255} = \frac{-20 + 16.5}{255} = \frac{-3.5}{255} \approx -0.01373
]
[
\text{Percentage Return} = -0.01373 \times 100 = \boxed{-1.37\%}
]
✅ Correct Answer: -1.37%
Apologies for the earlier misstatement. Your percentage return over 3 years is -1.37%, factoring in both the capital loss and the dividends received.
