You purchase a share of CAT stock for $90. One year later, after receiving a dividend of $4, you sell the stock for $97. What was your holding-period return?

A) 14.44%
B) 12.22%
C) 13.33%
D) 5.56%

Question

You purchase a share of CAT stock for $90. One year later, after receiving a dividend of $4, you sell the stock for $97. What was your holding-period return? A) 14.44% B) 12.22% C) 13.33% D) 5.56%

Donyell Elise · Accepted Answer

Final Answer : B, Explanation :  The holding-period return (HPR) is calculated by adding the dividend received to the price appreciation of the stock, and then dividing by the initial purchase price. Here, the dividend is $4 and the price appreciation is $97 - $90 = $7. So, the total gain is $4 + $7 = $11. Dividing this by the initial purchase price of $90 gives an HPR of $11 / $90 = 0.1222, or 12.22%.

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