Suppose You Purchase One Share of the Stock of VM

question 15

Multiple Choice

Suppose you purchase one share of the stock of VM Corporation at the beginning of year 1 for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share) and sell the shares for $36.45 each. The dollar-weighted return on your investment is

• A) −1.75%.
• B) 4.08%.
• C) 8.53%.
• D) 8.00%.
• E) 12.35%.

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Definitions:

Tender Offer

An offer to purchase made by one company directly to the shareholders of another (target) company; often referred to as a “takeover bid.”

Target Company's Management

The executive and senior officers responsible for operating and making strategic decisions for a company that is being considered for acquisition or merger.

Merger

The combining of two or more entities into one, through either the acquisition of one by another or the consolidation of both into a new entity.

Building Corporation

A company engaged in the construction of buildings, ranging from residential to commercial projects.