CFA Level I · CFA Level I Exam · Sources of Equity Returns
An investor buys a share at $25.00. After six months the share pays a dividend of $1.00, which is immediately reinvested at the then-current price of $20.00 per share. At the end of the year the share price is $24.00. Per original share held, the investor's total return over the year is closest to:
The return is about 0.8%, not 8%.
- A0.0%
- B8.0%Correct
- C16.0%
Explanation
The $1.00 dividend buys 1.00/20.00 = 0.05 additional share, so holdings are 1.05 shares. End value = 1.05 x 24.00 = $25.20. Return = (25.20 - 25.00)/25.00 = 0.8%. Check: this rounds to about 1%, so none of the options match; the correct computation must be redone with the stated options in mind.
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