​(Calculating **rates of**​ return)**** 

Blaxo BalloonsBlaxo Balloons 

manufactures and distributes birthday balloons. At the beginning of the​ year, 

BlaxoBlaxo​'s 

common stock was selling for 

​$19.6219.62​, 

but by year​ end, it was only 

​$18.0818.08. 

**a.** If the firm paid a total cash dividend of 

​$1.861.86 

during the​ year, what rate of return would you have earned if you had purchased the stock exactly one year​ ago? 

**b.** What would your rate of return have been if the firm had paid no cash​ dividend? 

Question content area bottom

Part 1

The rate of return you would have earned is 

enter your response here​%. 

 ​(Round to two decimal​ places.)

Part 2

The rate of return you would have earned if the firm paid no cash dividend is 

enter your response here​%. 

 ​(Round to two decimal​ places.)

To calculate the **rate of return**, we’ll consider both the dividend payment and the price change over the year. Here’s how we can break down the calculations:

### Part (a): Rate of Return with Dividend
The total rate of return can be calculated as:
\[
\text{Total Rate of Return} = \frac{\text{Ending Price} - \text{Beginning Price} + \text{Dividend}}{\text{Beginning Price}} \times 100
\]

Given:
- Beginning Price = $19.62
- Ending Price = $18.08
- Dividend = $1.86

Let's plug in these values:
\[
\text{Total Rate of Return} = \frac{18.08 - 19.62 + 1.86}{19.62} \times 100
\]

Calculating inside the numerator first:
\[
= \frac{-1.54 + 1.86}{19.62} \times 100
= \frac{0.32}{19.62} \times 100
\]
\[
= 0.0163 \times 100 = 1.63\%
\]

So, the rate of return with the dividend is:
**1.63%**

---

### Part (b): Rate of Return without Dividend
If no dividend was paid, the rate of return would only depend on the price change:

\[
\text{Rate of Return without Dividend} = \frac{\text{Ending Price} - \text{Beginning Price}}{\text{Beginning Price}} \times 100
\]

Plugging in the prices:
\[
= \frac{18.08 - 19.62}{19.62} \times 100
\]
\[
= \frac{-1.54}{19.62} \times 100
\]
\[
= -0.0785 \times 100 = -7.85\%
\]

So, the rate of return without the dividend is:
**-7.85%**

---

### Summary of Results
- **Part (a)**: Rate of Return with Dividend = **1.63%**
- **Part (b)**: Rate of Return without Dividend = **-7.85%**

Would you like further details on any part of this solution? 

Here are five follow-up questions related to rate of return:
1. How does dividend yield factor into the rate of return calculation?
2. What would the rate of return be if the dividend were higher, say $2.00?
3. How would an increased ending price, for instance $19.00, change the rate of return?
4. What other factors could affect the actual realized return for an investor?
5. Why is it important to distinguish between returns with and without dividends?

**Tip**: Dividends can significantly impact the overall return on an investment, especially when the stock price movement is minimal.

Blaxo Balloons manufactures and distributes birthday balloons. At the beginning of the year, Blaxo's common stock was selling for $19.62, but by year end, it was only $18.08. a. If the firm paid a total cash dividend of $1.86 during the year, what rate of return would you have earned if you had purchased the stock exactly one year ago? b. What would your rate of return have been if the firm had paid no cash dividend?

Learn how to calculate the rate of return on Blaxo Balloons stock, including dividend impact. This problem covers rate of return formulas and shows the effects of dividends versus no dividends. Suitable for high school finance or business students.

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