Suppose You Purchase One Share of the Stock of Cereal

question 18

Multiple Choice

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%
• E)none of the above

---

Definitions:

Trading Day

Refers to a day on which the stock exchanges are open for trading.

Broker Fee

A charge or commission a broker commands for their service in facilitating transactions, such as buying or selling securities.

Discount Broker

A broker who trades stocks, but does not give investment advice.

Net Proceeds

The total amount received from a sale or transaction after deducting all related expenses and costs.