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# Rate of return

1. The price of the stock of Clarkson Corporation went from \$50 to \$56 last year. The firm also paid \$2 in dividend. Compute the rate of return.

2. In the following year, the dividend was raised to \$2.25. However, a bear market developed toward the end of the year, and the stock price declined from \$56 at the beginning of the year to \$48 at the end of the year. Compute the rate of return or (lose) to stockholders.

3. Assume you buy 100 shares of stock at \$40 per share on margin (50 percent). If the price rises to \$55 per share, what is your percentage gain on the initial equity? (margin purchase)

4. In problem 3, what would the percentage loss on the initial equity be if the price had decreased to \$28? (margin purchase)

#### Solution Preview

Textbook problems

1. The price of the stock of Clarkson Corporation went from \$50 to \$56 last year. The firm also paid \$2 in dividend. Compute the rate of return.

Rate of return= Total returns/Purchase price
= (6+2)/50
16.00%

2. In the following year, the dividend was raised to \$2.25. However, a bear market developed toward the end of the year, and the stock price declined from \$56 ...

#### Solution Summary

This provides the steps to compute the Rate of return

\$2.19