If a stock yields a 3% dividend and its price increases by 3% in a year, what is the total annual return?

If a stock yields a 3% dividend and its price increases by 3% in a year, what is the total annual return?

• A. 0%
• B. 6%
• C. 3%
• D. 9%

Answer: (B)

Think of total return as the combination of income you receive plus any price movement. If a stock yields a 3% dividend and the price rises by 3% over the year, you gain 3% from the dividend and 3% from the price increase. Add them together to get the total return: 3% + 3% = 6%. So the investment shows a six percent total return for that year. The other options correspond to only one component or a mis-sum: 0% ignores both income and price gain, 3% ignores price appreciation, and 9% would double-count. If dividends are reinvested, the precise wealth path can involve compounding, but the annual total return remains the sum of income yield and price appreciation.

Think of total return as the combination of income you receive plus any price movement. If a stock yields a 3% dividend and the price rises by 3% over the year, you gain 3% from the dividend and 3% from the price increase. Add them together to get the total return: 3% + 3% = 6%. So the investment shows a six percent total return for that year. The other options correspond to only one component or a mis-sum: 0% ignores both income and price gain, 3% ignores price appreciation, and 9% would double-count. If dividends are reinvested, the precise wealth path can involve compounding, but the annual total return remains the sum of income yield and price appreciation.