If stock is sold three months after it is purchased, the formula above

Question

If stock is sold three months after it is purchased, the formula above relates p, d, s, and r, where p is the purchase price of the stock, d is the amount of any dividend received, s is the selling price of the stock, and r is the yield of the investment as a percent. If Rose purchased $400 worth of stock received a $5 dividend and sold the stock for $420, for three months after purchasing it, what was the yield of her investment, according to the formula? (Assuming she paid no commissions.)

A. 1.25%
B. 5%
C. 6.25%
D. 20%
E. 25%

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Official Answer

E

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paidlukkha · Answer

400(5+420-400/400)

25%

E

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Abhishek009 · Answer

With  paidlukkha

Answer will be undoubtedly be (E)

r  =  400  \frac{(5 + 420 - 400 )}{400}

r  =  25 %

BrushMyQuant · Answer

r = 400 *  \frac{(D + S - P)}{P}

D = 5
S = 420
P = 400

=> r = 400 *  \frac{(5 + 420 - 400)}{400} = 425 - 400 = 25%

So,  Answer will be E 
Hope it helps!

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shwetakoshija · Answer

Given: 
 
 Formula: r = 400((D + S − P)/P) 
 Purchase price: P = $400 
 Dividend received: D = $5 
 Selling price: S = $420 
 Here, r = t he yield of the investment   as a percent  .

To Find:  The yield r of Rose's investment according to the formula.
Note that r is already expressed  as a percent  by the formula itself — no further conversion is needed after substituting the values. This is a common confusion!

Solution:

Substitute the values into the formula:
 
 r = 400 × ((D + S − P)/P) 
 r = 400 × ((5 + 420 − 400)/400) 
 r = 400 × (25/400) 
 r = 400 × 0.0625 
 r = 25%

Correct Answer: E

Shweta Koshija  
  GMAT, GRE, SAT Coach for 10+ years

Usernamevisible · Answer

what is the relevant of 3 months in the question ?

shwetakoshija · Answer

Nothing really. They just gave us a formula that is relevant for a 3 month investment and then asked the question also for a 3 month period. It could very well have been 6 months (or something else) both ways.

NetOrb · Answer

but 400 and 420 are her total investment ? it says 400 was the invested amount, then says she sold stock for 420, so its confusing. but question directly says "she purchased 400$ worth of stock" so 400 is the total investment. and sold it for 20.
20 proft + 5 dividend on 400 investment - 6.25%. 
why is everyone taking 400 and 420 as s and p?

Bunuel · Answer

Do not overcomplicate it. The formula defines S as the selling price, and the stock was sold for 420, so S = 420. P is the purchase price, and she purchased 400 worth of stock, so P = 400.

If stock is sold three months after it is purchased, the formula above

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If stock is sold three months after it is purchased, the formula above

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