$4$ EPS and P$/$E ratios

Two years ago, Emily purchased $100$ shares of Toronto Hydro at $$52$ a share, plus a commission of $$6$ per share, for a total cost of $$58$ per share.

After one year, the stock$$s market value had risen to $$60.$ At the end of two years, Emily sold her stocks for $$80$ a share, less a per$-$share

commission of $$3.$ During the two years she held the stock, she received dividends of $$0\mathrm{.}58$ per share for the first year and $$0\mathrm{.}78$ per share for the second year.

a$)$ Calculate Emily$$s annual shareholder return for each of the two years she owned the stock. Show Year $1$ Annual Return$\%$ and Year $2$ Annual Return $\%$

b$)$ Calculate her annual average compound return over the $2$ year period. $($

Solution:

Year $1$

Year $1$ Year $2$ Annual Return $\%4\mathrm{.}0$

Capital Gains on shares Capital Gains on shares

Market Value $=$ per share Market Value $=$ Year $2$

Annual Return $\%4\mathrm{.}0$

Cost of shares $=$ per share Cost of shares $=$

Less: Commission$/$ share $=$ per share Less: Commission$/$ share $=$ Annual Ave

Total Cost per share $=$ Total Cost per share $=$ Compound Return $\%3\mathrm{.}0$

Yr $1$ Capital Gains per share $=$ Yr $2$ Capital Gains per share $=$

Annual Return per share Annual Return per share BAII Plus Calculator

Capital Gains per share $=$ per share Capital Gains per share $=$ P$/$Y $=1\mathrm{.}00$

Dividend income $=$ per share Dividend income $=$ C$/$Y $=1\mathrm{.}00$

Annual Return per share $=$ Annual Return per share $=$

Cost per share $=$ Cost per share $=$ n $=2\mathrm{.}00$

Yr $1$ Ann. Return per share $\%=$ Yr $2$ Ann. Return per share $\%=$ PV $=$

PMT $=0\mathrm{.}00$

Average Annual Compound Return FV $=$

Proceeds of share sale $=$ CPT I$/$Y $=$

Less: Commission$/$ share $=$

Net Proceeds $($funds received$)=$

Add: $2$ year Dividend Income $=$

Total $2$ Year Return $=($Future Value$)$

Total Purchase Cost $=($Present Value$)$

$25$