How is the nominal rate of return for a dividend paying stock calculated. I understand that nominal return is calculated using the formula:

(Current Market Value - Original Purchase Price) / Original Purchase Price

But then I read Example #2 here ( https://www.wallstreetmojo.com/nominal-rate-of-return/ ) and cannot understand where they are getting the numbers from. Specifically where they multiply the annual dividend rate by quarterly dividend rate divided by the share price.

  • 2
    Example #2 here makes no sense at all. Why does he sum the CD End Values in cell D9? The mutual fund numbers are gobledygook. $150 invested at $15 per share is 10 shares. If dividends reinvested, one owns more shares. Since not shown, the assumption is no DRIP. If share price is $16.50 at the end of the year, the cap gain is 10 shares x $1.50 or $15. That alone is a 10% ROI and the dividend isn't accounted for. And the answer is 9.50% ??? The short answer is that an annual return of 5% in a CD equals a 5% return in a mutual fund (total return), regardless of the dividend. – Bob Baerker Jul 26 at 0:13

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