Page 147 - CalcBus_Flipbook

CH 18] Calculating Business 18-11

Solution algorithm:

(a) $74.73 x 200 = $14,946.00 trade value of 200 shares when bought
$14,946.00 + $298.92 = $15,244.92 total cost of 200 shares

(b) $90.15 x 200 = $18,030 trade value of 200 shares when sold
$18,030 — $594.99 = $17,435.01 net proceeds

Net Proceeds — Total Cost = Capital gains/loss (+/-)
(c) $17,435.01 — $15,244.92 = + $2,190.09 capital gain from sale of 200 shares

Rate of yield is calculated on the ratio of the sale price to the purchase price of stock
expressed as:

(Sale Value — Purchase Value) x 100% = rate of yield %
Purchase Value

A stock purchased for $85 a share and sold for $95 would have a return of yield (ROY)
percent of:

($95 — $85) x 100% = 11.76 %
$85

Dividend Yield on Stock. Companies pay dividends quarterly, semiannually, or
annually, as it fits their business plan, and the dividends are paid on the Par Value of the
Stock and not on its purchase costs. Dividend yield is important to income investors as it
indicates the rate of return or interest paid as with a bank savings account.

Example A: The par value of stock is $75. The semi-annual dividend paid is 10%. The
stock was purchased for $100 per share. Calculate the (a) annual
dividend percent on the stock, (b) the dividend paid annually, (c) the yield
% on the stock.

Solution algorithm:
(a) dividend is paid semi-annually, every 6 month.
2 x 10% = 20% dividend per year.
(b) Par value x annual dividend % = dividend paid annually
$75 x 20% = $15.00
(c) Yield % = (annual dividend ÷ cost of investment) x 100%
Yield % = ($15.00 ÷ $100) x 100% = 15%

Example B: The par value of stock is $75. The semi-annual dividend paid is $4.50
The stock was purchased for $100 per share. Calculate the (a) annual
dividend paid, (b) annual dividend percent on the stock, (c) the yield %
on the stock.

Solution algorithm:
(a) Dividend is paid $4.50 semi-annually.
2 x $4.50 = $9.00 dividend per year
(b) Dividend % = ( annual dividend ÷ stock par value) x 100%
Dividend % = ($9.00 ÷ $75) x 100% = 12%
(c) Yield % = (annual dividend ÷ cost of investment) x 100%
Yield % = ($9.00 ÷ $100) x 100% = 9%

The dividend yield expresses the rate of return on the stock investment (cost paid for
the stock) and the value of the dividends received. A stock's annual dividend payments to
shareholders are expressed as a percentage of the stock's current price. The equation for
Dividend yield is:

Dividend yield = Annual Dividend x 100%
Stock Trade Value Price
18

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