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In-line exercise: security returns, solution (2)
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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Phil Dybvig
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During the second month, we start with a share valued
at $55 that falls to $40, but we also receive a $4
dividend. Therefore, the change in value is from $55 to $44
(equals $40 for the share plus $4 cash from the dividend),
for a change of -$11. The rate of return is -$11/$55, or
-20%. |
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