CFA Level I · CFA Level I Exam · Sources of Equity Returns
An investor buys a share for 50.00 and sells it one year later for 54.00 after receiving a dividend of 2.00 during the year. The dividend is not reinvested. The investor's capital gain return for the year is closest to:
The capital gain return is 8.0%. It is the price change of 4.00 divided by the starting price of 50.00. The dividend of 2.00 is a separate income component, worth a 4.0% dividend yield, and is excluded from the price return.
- A4.0%
- B6.0%
- C8.0%Correct
Explanation
Capital gain return = (54 - 50)/50 = 8.0%. The 4.0% choice is the dividend yield on the purchase price (2/50). The 12.0% total return would combine both, so 6.0% is wrong since it halves the gain or mixes components.
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