You purchased 500 shares of stock six years ago at $21.25 and incurred brokerage fees of $345. You received annual dividends of 27 cents per share. You just sold the stock for $54 and incurred brokerage fees totaling $518, immediately after receiving the sixth annual dividend. Calculate your rate of return.
total expenses = 500(21.25) + 345 + 518 = 11,488
Return = 6(.27)(500) + 500(54) = 27,810
let the rate of return be r
11488(1 + r)^6 = 27810
(1+r)^6 = 2.42078...
take 6th root
1+r = 1.1587..
r = .1587..
the annual return would be appr 15.9%
To calculate the rate of return, we need to gather a few pieces of information:
1. Initial investment: 500 shares * $21.25 per share = $10,625
Brokerage fees for purchase = $345
2. Dividends received annually for 6 years:
Annual dividend per share = $0.27
Total dividend received = 500 shares * $0.27 per share * 6 years = $810
3. Proceeds from selling the stock:
500 shares * $54 per share = $27,000
Brokerage fees for selling = $518
Now that we have all the required information, we can calculate the rate of return.
Step 1: Calculate the total cost of the investment:
Initial investment = Initial stock purchase + Purchase brokerage fees
= $10,625 + $345
= $10,970
Step 2: Calculate the total proceeds:
Total proceeds = Selling price - Selling brokerage fees
= $27,000 - $518
= $26,482
Step 3: Calculate the total dividend received over 6 years:
Total dividend = Dividend per share * Number of shares * Number of years
= $0.27 * 500 * 6
= $810
Step 4: Calculate the total return:
Total return = Total proceeds + Total dividend - Initial investment
= $26,482 + $810 - $10,970
= $16,322
Step 5: Calculate the rate of return:
Rate of return = (Total return / Initial investment) * 100%
= ($16,322 / $10,970) * 100%
≈ 148.78%
Therefore, the rate of return on the stock investment is approximately 148.78%.
To calculate the rate of return on your investment, follow these steps:
1. Calculate the initial cost of your investment:
Initial cost = (Number of shares * Purchase price per share) + Brokerage fees
Initial cost = (500 shares * $21.25 per share) + $345
Initial cost = $10,625 + $345
Initial cost = $10,970
2. Calculate the total income from dividends over the six-year period:
Total dividends = Number of shares * Annual dividend per share * Number of years
Total dividends = 500 shares * $0.27 per share * 6 years
Total dividends = $810
3. Calculate the final cost of your investment:
Final cost = Sale proceeds - Brokerage fees
Final cost = $54 - $518
Final cost = -$464 (Note: a negative value means you incurred a loss)
4. Calculate the rate of return (ROI):
ROI = (Final cost - Initial cost + Total dividends) / Initial cost * 100
ROI = (-$464 - $10,970 + $810) / $10,970 * 100
ROI = -$10,624 / $10,970 * 100
ROI = -0.967 * 100
ROI = -96.7%
Based on the calculations, your rate of return on this investment is -96.7%, indicating a loss.