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In-line exercise: security returns, solution (3)

Ursidae Corp's common stock was worth $50/share at the end of December, $55/share at the end of January, $40/share at the end of February, and $21/share at the end of March. There was a $4 dividend paid in February, and a 2-for-1 stock split in March. Compute the three monthly rates of return for Ursidae Corp.
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R1 = (55 - 50)/50 = 10%

R1 = (40+4-55)/55 = -20%

R1 = (40+4-55)/55 = -20%


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Phil Dybvig
During the third month, we start with a single share worth $40 and we finish with two shares worth $21 each, for a total value of $42. The change in value is $2, and the rate of return is $2/$40, or 5%.

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