II. (8) To calculate the return of a stock, in general, we use the following formula:

Return = (P1 P0 + D1)/P0, where P1 is the price of a stock at the end of a period (t=1), P0 = the price of a stock the beginning of a period (t=0), and D1 = the dividend paid during the period.

Separate the return in two parts as: (P1 P0 + D1)/P0 = (P1 P0)/P0 + D1/P0. The first is called capital gain (or loss if the price decreases) and the second part is called income gain.

Answer the following questions:

1. Suppose that the price of ABC stock at the beginning of 2019 was $20 and it increased to $25 at the end of 2019. Also, ABC paid $2 of dividend during the period.

a. What was the capital gain (%) of ABC stock?

b. What was the income gain of this stock?

c. What was the (total) return of this stock?

d. Now, suppose that the price of stock decreased to $15 at the end of 2019.

Find the capital loss and the total return of this stock during the year.