CFA Level I · CFA Level I Exam · Sources of Equity Returns
A share is bought for 50.00 and sold one year later for 53.00. During the year it paid a dividend of 1.50, which was received at year-end and not reinvested. Ignoring taxes and costs, the share's total return is closest to:
The total return is 9.0%: a 6.0% capital gain (3.00 on 50.00) plus a 3.0% dividend yield (1.50 on 50.00). Answers of 6.0% or 3.0% each capture only one component of the return.
- A3.0%
- B6.0%
- C9.0%Correct
Explanation
Price return = 3.00/50.00 = 6.0%. Dividend yield = 1.50/50.00 = 3.0%. Total return = 6.0% + 3.0% = 9.0%. Choosing 6.0% omits the dividend, while 3.0% counts only the dividend.
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