Steve Berman purchased 1,000 shares at $40 per share at the beginning of the year. The company paid annual dividends of 5% (of the original price) on the shares and after two years the stock was worth $48. In year 3, the dividends were increased to 6% (of the original price) and at the end of year 3 the stock was worth $50. (15 marks)
• Calculate the stock’s total return for 3 years.
• Calculate the stock’s compound annual return (CAR) for the first 2 years.
Marking Grid: • Note: it is important that you show the steps in arriving at your answer-you will get credit for the correctly presented items.
• Correctly determining: Present Value, Dividend Income for 3 years, Capital Gain for 3 years, total $$ return for 3 years, and total % return for 3 years.
• Correctly identifying the keying steps: PV, FV, PMT, & N 1 pt.
• Getting the correct answer.