CFA Level I · CFA Level I Exam · Sources of Equity Returns
An investor holds a share for one year. The share price rises from 80.00 to 88.00, and the dividend of 2.00 per share is received at year-end and not reinvested. Dividends contribute what portion of the total return?
Dividends contribute 20.0% of the total return. The price return is 10.0% and the dividend yield is 2.5%, making a 12.5% total. Dividing 2.5% by 12.5% gives 20.0%; using the price return as the denominator would wrongly give 25.0%.
- A20.0% of the total returnCorrect
- B25.0% of the total return
- C75.0% of the total return
Explanation
Price return = 8/80 = 10.0%. Dividend yield = 2/80 = 2.5%. Total = 12.5%. Dividend share = 2.5/12.5 = 20.0%. 25.0% wrongly divides dividend by price return base ratio incorrectly (2.5/10).
Did you get it right without looking?
One question tells you little. A timed set on Sources of Equity Returns shows your real accuracy, how long you take and where you lose marks.
More Sources of Equity Returns questions
- An investor buys a share for 40.00 and sells it one year later for 44.00 after receiving a cash dividend of 2.00. Ignoring taxes and transac…
- Compared with a historical estimate of the equity risk premium, a forward-looking (supply-side) estimate is most likely to:
- 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…
- An investor buys a share for $40.00, receives dividends of $1.20 during the year, and sells the share for $42.00 at year-end. The investor's…
- A company announces a 2-for-1 stock split. Holding all else equal, the split most likely changes an existing shareholder's total return from…
- An analyst argues that the contribution of P/E expansion to equity returns is least likely to be sustainable over long horizons. The most ap…