The ex-dividend price for a share in an index tracking fund is $700. One year ;ater it stands at $900 and two years later at $750. You buy 10 shares now, 20 in year 1 and sell all 30 in year 2. Dividends per share are $7 per annum, payable at the year end. Calculate (i) the internal rate of return for the period of two years and contrast it with (ii) the index rate of return for the same period. Explain the terms used to further distinguish between the two methods of calculation

The ex-dividend price for a share in an index tracking fund is $700. One year ;ater it stands at $900 and two years later at $750. You buy 10 shares now, 20 in year 1 and sell all 30 in year 2. Dividends per share are $7 per annum, payable at the year end. Calculate (i) the internal rate of return for the period of two years and contrast it with (ii) the index rate of return for the same period. Explain the terms used to further distinguish between the two methods of calculation

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 8P: A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per...

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