Suppose you purchase one share of the stock of Cereal Correlation Company at the beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and sell the shares for $67.20 each. The time-weighted return on your investment is
A) 10.0%.
B) 8.7%.
C) 19.7%.
D) 17.6%.

Question

Quizplus · Accepted Answer

Year 1: ($72 + $1 $50)/$50 = 46%; Year 2: ($67.20 + $1 $72)/$72 = 5.28%; Time-weighted average = (1.46 × (1 .0528))^1/2 1 = .1760 = 17.6%.

Suppose You Purchase One Share of the Stock of Cereal