Suppose that 1 year later, NTT's common stock is selling for $75 per share. During the 1-year period, NTT paid $4 commons stock dividend. Determine the realized (ex-post) percentage holding period return on NTT common stock.
What if it was sold for $58 1 year later?
or $50 1 year later?
take a shot, what do you think. BTW, in this problem, you do not state the initial price. As a homework helper, I do not want to go looking for it in one of your earlier posts.
To determine the realized (ex-post) percentage holding period return on NTT common stock, we need two pieces of information: the initial price and the final price.
Given:
- Initial price = $100 per share
- Final price after 1 year = $75 per share
- Common stock dividend paid during the year = $4
Step 1: Calculate the dividend-adjusted purchase price:
Dividend-adjusted purchase price = Initial price - Dividend paid
Dividend-adjusted purchase price = $100 - $4 = $96 per share
Step 2: Calculate the holding period return:
Holding Period Return = (Final price + Dividend) / Dividend-adjusted purchase price - 1
Holding Period Return = ($75 + $4) / $96 - 1
Holding Period Return = $79 / $96 - 1
Holding Period Return = 0.82292 - 1
Holding Period Return = -0.1771 or -17.71%
Therefore, the realized percentage holding period return on NTT common stock after 1 year is -17.71%.
Now let's calculate the holding period return for different scenarios:
1. If NTT stock is sold for $58 per share after 1 year:
Dividend-adjusted purchase price = $96 per share (as calculated earlier)
Holding Period Return = ($58 + $4) / $96 - 1
Holding Period Return = $62 / $96 - 1
Holding Period Return = 0.64583 - 1
Holding Period Return = -0.3542 or -35.42%
2. If NTT stock is sold for $50 per share after 1 year:
Dividend-adjusted purchase price = $96 per share (as calculated earlier)
Holding Period Return = ($50 + $4) / $96 - 1
Holding Period Return = $54 / $96 - 1
Holding Period Return = 0.5625 - 1
Holding Period Return = -0.4375 or -43.75%
Therefore, if NTT stock is sold for $58 after 1 year, the realized percentage holding period return would be -35.42%, and if sold for $50, the realized percentage holding period return would be -43.75%.