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CFA Level I · CFA Level I Exam · Sources of Equity Returns

A share is bought at 80.00 and sold after one year at 76.00. It paid a single dividend of 5.00 during the year, and the dividend was not reinvested. Which statement best describes the investor's result?

The price return is negative at -5.0%, but the total return is positive at about +1.25%. The 5.00 dividend adds a 6.25% yield, which more than offsets the price decline. Price return by definition excludes dividends, so it cannot be positive here.

  1. APrice return is negative, and the total return is positiveCorrect
  2. BPrice return and total return are both negative
  3. CPrice return is positive because dividends are included in it

Explanation

Price return = (76 - 80)/80 = -5.0%. Dividend yield = 5/80 = 6.25%. Total return = +1.25%, so it is positive even though the price return is negative. Price return excludes dividends, so the third statement is wrong.

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