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Consider you are an investor that buys 500 stocks of a company at 5€ per share on December 31st
Consider you are an investor that buys 500 stocks of a company at 5€ per share on December 31st. The company pays annual dividends of 0,75€. During thart year the company announces they're going to have a capital increase by issuing new shares. Stockholders have been given cumulative rights of 0,50€ per share. What would be your profitability if you decide to sell stocks on June 30th at 6€ per share? What would be your annualized profitability? There are no brockerage commissions?
Expert Solution
Total Profit = Dividend + Capital Gain
= (0.75 * 500) + (500*6 - 500*5)
= 375 + (3000 - 2500)
= 875
Annualized Profitability
Holding Period Return (HPR) = (P1 - P0) + Div. / P0
= (6 - 5) + 0.75 / 5
= 35%
HPR is of 6 Months
So 12 Months Return will be 35 * 2 = 70% Annualized
NOTE
There is nothing specifically given about cumulative rights that whether it sold or subscribed
So Assuming it lapsed.
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