a) Terry wants to know the holding period return for a stock that he bought a year ago for $100 per share. The stock is now worth $109, and over the year, he received quarterly dividends of $0.25 per share. b) What is the dividend yield over this one year holding period? c) What is the capital gains yield?

(a) Holding period for stock = 10%

(b) Dividend yield = 1%

(c) Capital gains yield = 9%

Explanation:

Given Data;

Quarterly Dividends = $0.25 = 4 * 0.25 = $1.00 (annual dividends)

Purchase Price per share = $100 per share

Current Price per share = $109 per share

(a)

Holding period for stock is calculated using the formula;

Holding Period Return (HPR) = [ (Current Price per share - Purchase Price per share) + Annual Dividend Received} / Purchase Price per share] x 100

Substituting into the formula, we have

Holding Period Return (HPR) = [ (109 - 100) + 1} / 100] x 100

=[ (9 + 1) / 100] x 100

= [10 / 100] x 100

= 0.1 * 100

= 10%

(b)

Dividend yield is calculated using the formula;

Dividend yield = (Dividend received / purchase price of stock) * 100

= [ (0.25 x 4) / 100 ] * 100

= (1/100) * 100

= 0.01 * 100

= 1%

(c)

The capital gain yield is computed as shown below:

Capital gain yield = (Current price of stock - purchase price of stock) / purchase price of stock * 100

Capital gain yield = [ ($ 109 - $ 100) / $ 100 ] * 100

= (9/100) * 100

= 0.09 * 100

= 9%

holding period yield is 9.25%

Dividend yield is 0.25%

Capital gains yield is 9.00%

Explanation:

Holding period yield is the total return that accrues to an investment over a period which the investment is owned.

Holding period yield = (Current price-Initial price+dividend) / initial price

current price is $109

initial price is $100

dividend is $0.25

holding period yield = ($109-$100+$0.25) / $100

=9.25%

Dividend yield = dividend/initial price

=$0.25/$100

=0.25%

Capital gains yield = (Current price-initial price) / initial price

= ($109-$100) ?$100

=9.00%

Invariably holding period yield is the dividend yield plus capital gains yield.