Series 65: 7.3.4 Total Return

7.3.4  Total Return

An investor may earn revenue from an investment in addition to the investment’s appreciation in value.

Total return includes appreciation, as well as dividends and interest (income).

Example Question 1

Jake bought 1,000 shares of XYZ Company at $25. Two years later, Jake sold his shares at $30. In that period, the company paid a $.25 quarterly, per share dividend. Calculate Jake’s annualized total return, not taking into account compounded interest.

Answer: 14%.

Appreciation on XYZ = $30,000 – $25,000 = $5,000

XYZ dividends = $.25 x 8 quarters x 1,000 shares = $2,000

total return = (appreciation or loss in value + dividends and interest) / original investment