Shares of ABC company pay a N$6 dividend at the end of every year (i.e. 31st December). An investor buys two shares of

Question

Shares of ABC company pay a N$6 dividend at the end of every year (i.e. 31st December). An investor buys two shares of the stock on period 0 at price N$25 each, sells one of those shares for N$50 a year later and sells the second share an additional year later for N$25. Find the time weighted rate of return of this 2-year investment.

Help In Homework · Accepted Answer

Total Investment at time 0 = N$25*2 = N$50 Value of investment at time 1 = N$50*2+$6*2 = N$112 Return in 1st year = (N$112-N$50)/N$50 = 1.24 or 124% Investment at time 1 = N$50*1 = N$50 Value at time 2 = N$25+ N$6 = N$31 Return in 2nd year = (N$31-N$50)/N$50 = -0.38 or -38% So, time weighted return = Geometric mean of the two returns = ((1+1.24)*(1-0.38))^0.5-1 =0.1784736 or 17.85% Time weighted return is 17.85%

Why Choose Us?

0% AI Guarantee

24/7 Support

Plagiarism Free

Expert Tutors

100% Confidential

On-Time Delivery

Shares of ABC company pay a N$6 dividend at the end of every year (i

Expert Solution

Archived Solution