Analysis of Stock Performance

  Analysis of Stock Performance Given the information provided about the stock, we can calculate the total rate of return, dividend yield, and percentage capital gain in two scenarios. Scenario 1: - Initial Price (P₀): $60 per share - Dividend Paid: $3 per share - Final Price (P₁): $75 per share Total Rate of Return: Total Rate of Return = (Dividends + (P₁ - P₀)) / P₀ Substitute the values: Total Rate of Return = ($3 + ($75 - $60)) / $60 Total Rate of Return = ($3 + $15) / $60 Total Rate of Return = $18 / $60 Total Rate of Return = 0.30 or 30% Dividend Yield: Dividend Yield = Dividends / P₀ Substitute the values: Dividend Yield = $3 / $60 Dividend Yield = 0.05 or 5% Percentage Capital Gain: Percentage Capital Gain = (P₁ - P₀) / P₀ Substitute the values: Percentage Capital Gain = ($75 - $60) / $60 Percentage Capital Gain = $15 / $60 Percentage Capital Gain = 0.25 or 25% Scenario 2: - Initial Price (P₀): $60 per share - Dividend Paid: $3 per share - Final Price (P₁): $51 per share Dividend Yield: Dividend Yield = Dividends / P₀ Substitute the values: Dividend Yield = $3 / $60 Dividend Yield = 0.05 or 5% Percentage Capital Gain: Percentage Capital Gain = (P₁ - P₀) / P₀ Substitute the values: Percentage Capital Gain = ($51 - $60) / $60 Percentage Capital Gain = -$9 / $60 Percentage Capital Gain = -0.15 or -15% In scenario 2, the negative percentage capital gain indicates a loss in the value of the stock. Conclusion In scenario 1, the total rate of return on the stock is 30%, with a dividend yield of 5% and a percentage capital gain of 25%. However, in scenario 2, with a lower year-end stock price after the dividend is paid, the dividend yield remains at 5%, but there is a negative percentage capital gain of -15%, indicating a loss in the stock's value. It is essential for investors to consider both the dividend yield and capital gains to evaluate the overall performance of their investment in stocks.  

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