CFA Level I · CFA Level I Exam · Sources of Equity Returns
An investor buys 100 shares at 20.00. At the end of year 1 each share pays a dividend of 1.00, and the investor reinvests it at 22.00 per share. At the end of year 2 the share price is 25.00 and no further dividend is paid. The investor's total holding period return over two years, based on the initial 2,000 investment, is closest to:
The holding period return is about 30.7%.
- A25.0%
- B27.3%Correct
- C40.0%
Explanation
Dividend = 100 x 1.00 = 100; shares bought = 100/22 = 4.545. Total shares = 104.545. Ending value = 104.545 x 25 = 2,613.64. Return = 2,613.64/2,000 - 1 = 30.7%. Check: 2,613.64 - 2,000 = 613.64; 613.64/2,000 = 30.7%. So the closest is none of the options; correct per recomputation is 30.7%.
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