Roger purchased a stock for $16 a share. The stock paid a $1 annual dividend and increased in price by $2 a year for the following three years. What is the arithmetic average annual capital gain? The arithmetic average annual total return?

11.20%, 16.80%

Explanation:

Purchase Price = $16

Year 1 end closing price = $18

Capital Gain Yield for the first year =     =  = 12.5%

Capital Gain Yield for the second year = = 11.11%

Capital gain yield for the third year = = 10%

Average annual capital gain yield = =  11.20% approx

Dividend yield for first year =  = = 6.25%

Dividend yield for the second year = = = 5.55%

Dividend yield for the third year = = = 5%

Average Annual Yield = =   = 16.80%

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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