One year ago, Yong Kim bought a preferred stock that had a 6% dividend yield. Now, one year later, Kim sells the stock which is how selling at a 5% dividend yield. The preferred stock pays a fixed annual dividend, which Kim received right before selling. What rate of return did Kim realize on his investment?
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A. B. C.C
To calculate the rate of return realized by Yong Kim on his investment, we need to consider the dividend yield and the price appreciation of the preferred stock over the one-year holding period.
The dividend yield represents the dividend paid by the stock as a percentage of its price. In this case, the preferred stock initially had a 6% dividend yield, meaning that the annual dividend received by Yong Kim was 6% of the price at which he bought the stock.
After one year, Kim sells the stock, and now it has a 5% dividend yield. This means that the annual dividend received by Kim right before selling the stock was 5% of the selling price.
To calculate the rate of return, we need to consider both the dividend received and the price appreciation. The formula for the rate of return is:
Rate of Return = (Dividend Income + Price Appreciation) / Initial Investment * 100
We can break down the rate of return calculation into two parts: dividend income and price appreciation.
Dividend Income = Dividend Yield * Initial Investment
Price Appreciation = Selling Price - Purchase Price
Now, let's calculate the rate of return using the given information:
Given: Initial dividend yield = 6% Final dividend yield = 5%
To make the calculation, we need the initial purchase price, the selling price, and the initial investment amount. Unfortunately, the question does not provide these details. Without this information, we cannot calculate the rate of return accurately. Therefore, we cannot determine the correct answer from the options given (A. 14%, B. 20%, C. 26%).