Asked by Alexandra Kostanyan on May 10, 2024
Verified
Which of the following best describes the formula for the total return on a stock?
A) The total return on a share of stock is calculated by adding the dividend yield and any commissions paid when the stock was bought.
B) The total return on a share of stock is calculated by adding the dividend yield and the capital gains yield.
C) The total return on a share of stock is calculated by adding the dividend yield and the firm's management expense ratio.
D) The total return on a share of stock is calculated by dividing the dividend yield and the capital gains yield.
Total Return
The overall financial gain or loss on an investment, including both capital appreciation/depreciation and dividends or interest over a given period.
Dividend Yield
A financial ratio that indicates how much a company pays out in dividends each year relative to its stock price.
Capital Gains Yield
The price appreciation component of the total return on an investment, calculated as the change in the price of the investment over a period of time.
- Comprehend the process of calculating necessary returns on shares through the projection of dividends and the application of growth models.
Verified Answer
LV
loredana vescioMay 13, 2024
Final Answer :
B
Explanation :
The total return on a share of stock is calculated by adding the dividend yield and the capital gains yield. Dividend yield is the portion of a company's profit that is paid out as dividends to shareholders, while capital gains yield is the increase or decrease in the value of the stock over time. Therefore, adding these two yields gives the total return on a stock. Commissions and management expense ratios are not included in the formula for total return. Dividing the dividend yield and capital gains yield does not give the total return, but rather separates each yield.
Learning Objectives
- Comprehend the process of calculating necessary returns on shares through the projection of dividends and the application of growth models.