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Question: Can someone please help me with a personal finance rate of return question?

At the beginning of the year you purchased 100 shares of common stock for $15. One year later you sell it for $17. It paid a quarterly dividend for 25 cents per share during the time you had it. What is your total rate of return on this stock?

Answer: If you really paid just $15 for all 100 shares, and then sold them for $17, then your total cash in would be $17 + (100 X 4 X $0.25) = $117 and your cash out would be just $15, so your return would be:

($117 – $15) / $15 = 780%, which would make you a Wizard on Wall Street.

But if you really meant that you paid $15 a share, then your cost would be:

100 X $15 = $1,500

Your dividends earned would be:

100 X 4 X $0.25 = $100

Your sale price for the shares would be:

100 X $17 = $1,700

So the total amount of cash in would be ($100 + $1,700) = $1,800

The total amount of cash out would be $1,500.

Your total gain, and rate of return would be calculated as:

($1,800 – $1,500) / $1,500 = 20%

So your total rate of return under this scenario is 20%, which is still pretty good.

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