Education Technology

Returns on a Share of Stock

Published on 06/09/2008

Activity Overview

In this activity, students will determine the internal rate of return of the cashflows associated with the stock purchase, dividends, and sale. They will carry out explorations by varying the selling price of the stock and examining the impact on the rate of return.

Before the Activity

  • See the attached PDF file for detailed instructions for this activity
  • Print page 46 - 48 from the attached PDF file for your class
  • During the Activity

    Distribute the pages to the class.

    Follow the Activity procedures:

  • Calculate the internal rate of return for the stock price
  • Vary the selling price and for each stock price calculate the internal rate of return
  • Prepare a graph of stock sale price versus the internal rate of return
  • For a certain rate of inflation, find the price at which the stock is to be sold to breakeven (using graphs and tables)
  • Calculate the internal rate of return given the purchase price, dividend amounts, and the selling price
  • After the Activity

    Review student results:

  • As a class, discuss questions that appeared to be more challenging
  • Re-teach concepts as necessary