Answer:
a) Total gross return = 459.3%
b) Average annual return = $4,195
Explanation:
First, let's summarize the given data:
Number of shares = 1000, purchase price = $3 per share,
annual dividend = 7 cents = $0.07 for each share per year,
duration = 4 years, selling price = $16.50 per share,
brokerage fee = 4%
Calculation of total costs for shares = number of shares * purchase price
Cost = 1000 * 3 = 3,000
Cost = $3,000
On January 1, 2006, I acquired shares valued at $3,000
Calculation of total dividends received = dividend * number of shares * time
Total dividends = 0.07 * 1000 * 4 = $280
In four years, I received $280 from dividends
Total revenue from sale = number of shares * selling price
Total sale price = 1000 * 16.50 = $16,500
Brokerage fee = 4% of total sale
Brokerage fee = 0.04 * 16500 = $660
a) Total gross return calculation = (dividend + revenue from sale - purchase cost) ÷ purchase cost
Total gross return = (280 + 16500 - 3000) ÷ 3000
Total gross return = 13780 ÷ 3000 = 4.593
Total gross return = 4.593 * 100%
Total gross return = 459.3%
This indicates a gain exceeding 400% (four times the investment in acquiring the shares)
Note: Total gross return does not factor in any fees or expenses such as brokerage charges
b) Average annual return = Total returns during the specified timeframe ÷ duration
Total returns during the specified timeframe = dividend + total sale revenue = 280 + 16500 = $16,780
Average annual return = 16780 ÷ 4 = 4195
Average annual return = $4,195
