PFIN 3rd Edition by Lawrence Gitman,Michael Joehnk,Randall Billingsley

Exercise 3

About a year ago, Nigel Palmer bought some shares in the Equity Partners Fund. He bought the stock at $24.50 a share, and it now trades at $26.00. Last year, the fund paid dividends of 40 cents a share and had capital gains distributions of $1.83 a share. Using the approximate yield formula, what rate of return did Nigel earn on his investment? Repeat the calculation using a handheld financial calculator. Would he have made a 20 percent rate of return if the stock had risen to $30 a share?