Suppose you invested $93 in the Ishares High Yield Fund (HYG) a month ago. It paid a dividend of $0.53 today and then you sold it for $94. What was your dividend yield and capital gains yield on the investment? A) 0.54%, 1.13% B) 0.57%, 1.08% C) 0.57%, 1.13% D) 1.08%, 1.18%

To calculate the dividend yield and the capital gains yield on the investment, we'll need to use the following formulas:

Dividend Yield = (Dividend per share) / (Price per share at purchase time) - Capital Gains Yield = ((Selling Price per share - Purchase Price per share) / Purchase Price per share) * 100%

Now let's calculate these yields using the provided information.

First, the dividend yield: You received a dividend of $0.53 on your investment of $93. Dividend Yield = $0.53 / $93 ≈ 0.0056989 To express this yield as a percentage, multiply by 100. Dividend Yield ≈ 0.0056989 * 100 ≈ 0.57%

Next, the capital gains yield: You sold the Ishares High Yield Fund (HYG) for $94, and you initially invested $93. Capital Gains Yield = (($94 - $93) / $93) * 100% Capital Gains Yield = ($1 / $93) * 100% Capital Gains Yield ≈ 0.0107527 * 100% Capital Gains Yield ≈ 1.08%

So, the dividend yield is about 0.57%, and the capital gains yield is about 1.08%. The correct answer is B) 0.57%, 1.08%.

Extra: Understanding yields can be beneficial for comparing the performance of various investments. Dividend yield represents the return from dividends, which are payments made by a company to its shareholders out of its profits. In this case, the dividend yield shows how much income (apart from any capital gains) you have earned on your investment based solely on the sum of the dividends paid.

Capital gains yield, on the other hand, represents the price appreciation on an investment. It measures how much the value of your investment has increased (or decreased), excluding dividends. It helps investors understand how profitable their investment was due to the change in its market value.

In this scenario, we calculated both yields as percentages, which is helpful for comparing the performance of different stocks or funds, regardless of their initial investment size. It's important for students to remember that high yields in dividends or capital gains don't automatically make an investment better, as higher yields can come with higher risks. Therefore, investors need to consider both potential returns and risks before making investment decisions.