Question 1
Multiple ChoiceAn investor purchased 5,000 shares of a company and sold them one year later at a price of $30 per share. During the holding period, the investor received $1,500 in dividends. If the total return on the investment was 12%, the price originally paid per share was closest to:
Explanation
HPR = \frac{P_{1}+D_{1}-P_{0}}{P_{0}}
P_{1} = The amount received at the end of the investment
D_{1} = Dividend Per Share
P_{0} = Initial Investment
First, calculate dividend per share: D1
1,500 / 5,000 = 0.30
Then substitute and solve for P_{0}
0.12 = \frac{30.30 - P_{0}}{P_{0}}
P_{0}\times0.12 = 30.30 - P_{0}
P_{0}\times1.12 = 30.30
P_{0} = \frac{30.30}{1.12} = 27.05
Question 2
Multiple ChoiceAn investor purchases 200 shares of a stock at $35 per share. After one year, the investor sells all shares at $36.25 each and receives total dividends of $300. The holding period return (HPR) on this investment is closest to:
Explanation
HPR = \frac{P_{1}+D_{1}-P_{0}}{P_{0}}
P_{1} = The amount received at the end of the investment
D_{1} = Dividend Per Share
P_{0} = Initial Investment
\frac{36.25+1.50−35}{35} = 7.86%