About a year ago, Ramon Navarrete bought some shares in the Saphire Lake Mutual Fund. He bought the fund at $25.00 a share, and it now trades at $26.00. Last year the fund paid dividends of 60 cents a share and had capital gains distributions of $2.70 a share.
1. Using the approximate yield formula, what rate of return did Ramon earn on his investment? Round the answer to two decimal places.
2. Repeat the calculation using a handheld financial calculator. Round the answer to two decimal places.
3. Would he have made a 20% rate of return if the stock had risen to $30 a share?