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Question extract:
Share price 3.50 at end of 2001 and this includes a capital gain of 0.75 since the beginning of the period.
Dividend paid of 0.25
What is shareholder return?
Answer extract:
0.75+0.25 / 3.50-0.75 =36.4%I don’t understand how they deal with the capital gain I thought the answer was 3.50+0.25\3.50
Using P1-P0+D1 / P0Can you please help me to understand this ?
Thank youIf the price at the end of the year is 3.50, and the capital gain was 0.75, then the price at the start of the year was 3.50 – 0.75 = 2.75
You really should not simply learn formulae for this exam (only half of the questions will involve calculations simply because the examiner is testing that you are understanding and not just learning formulae).
However, if you insist on using a formula then P1 = 3.50, P0 = 2.75, and D1 = 0.25, and the BPP answer is correct.
(What you have done is put P1 = 3.50, ignored P0 in the numerator, and put P0 = 3.50 in the dominator, which makes no sense.)I do suggest that you watch my free lectures (total shareholder return is dealt with in the second chapter of the free lecture notes). The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.
But the answer states 0.75 +0.25 at the beginning of the equation not 2.75+0.25?
P.s should I do the exam kit after the entire text or in between each section?
Thank youYou have not read my reply properly (and you obviously have not read our lecture notes or watched my free lectures either)!!
The return is the increase in market value plus the dividend. The increase in market value is 0.75 as I wrote before.
Please do watch the free lectures and attempt the test linked after each chapter. It doesn’t matter whether you attempt the exam kit questions after each chapter or when you have finished all the chapters, but probably better to leave the exam kit until you have finished all of the studying.
The lectures are a complete free course and cover everything needed to be able to pass the exam well. If you watch the lectures then you do not really need to use the study text.
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