 Personal finance practice problem using OneNote. Dividends and gain on investment calculation. Prepare to get financially fit by practicing personal finance. You're not required to, but if you have access to OneNote, would like to follow along. We're in the icon, left-hand side, practice problems tab, and the 1240 dividends and gains on investment calculation tab. Also, take a look at the immersive reader tool. The practice problems typically in the text area too with the same name, same number, but with transcripts. Transcripts that can be translated into multiple languages either listened to or read in them. Remember that dividends represent a kind of return on investment in stocks. Stocks being an ownership interest in a corporations. Corporations being a separate legal entity which have their ownership interest broken out into standardized units of stocks or shares. We're typically thinking about those corporations that are publicly traded. Those which have decided to be traded on exchanges. The dividends representing a return of the earnings to the owners. They're similar to draws for a partnership or a sole proprietor. However, if you take money out in a partnership, different partners can take out different amounts of money. When you're talking about a corporation, you can't have different shares taking out different amounts of money. It's going to be standardized. Therefore, the decision to give dividends needs to be determined by the board of directors or the and or management and it's going to be determined on the company side of things on a per share basis so that you might get more or less dividends based on the number of shares, but each share is going to be equivalent in nature in that way. We also have two kind of forms of return that we're typically looking at when we're thinking about investing in stocks. One being possibly dividend return. The other being increase in the value of the stock, which we might realize when we sell the stock. Possibly that going up by the company retaining more of their earnings instead of distributing them as dividends and using them to create value in the company increase in the market price generally. Okay, given that we've got the shares to purchase. We got shares 300 shares. The cost is 14. We're going to say that there's a broker commission that kind of muddies the water a bit of $6. You sold the stock a year later for the shares 300. The price 47 and the broker commissions are $10. So we bought the stock. We sold it a year later and then we also have these dividends per share of the 210. So there was obviously a gain in the stock price. Note that the gain in the stock price is good even if we don't sell it. But the stock price could of course go down. It's a volatile thing or more volatile than other investments. When we realize it that's when we sell it and kind of lock in the gain. That's also when we might have tax implications which we won't get into in detail here that could happen at that point. So we could have unrealized or realized gains, unrealized being those which mean the stock price is going up but we haven't really cashed it in and then realized would be generally sold the stock and realized gains can trigger taxes. Okay. So the dividends we could say we got the 300 shares and the dividends per share we're going to say on an annual basis are to the 210. So if I multiply that out we got 630 for the dividends over the year we're going to say. The cost to purchase, how much did it cost to purchase the stock? Again notice that these tables are really good to be making in Excel. These kind of basic calculations. So I highly recommend using Excel, visualize your tables and work on that in Excel. But we got the cost for the stock 300 shares that we purchased and they cost 14 per share. So that would come out to the 4200. However we also have to tack on the broker commission which we're saying is $6. So 4200 plus the $6 broker commission is going to bring us to the cost of $4206. What about the sales proceeds when we sold it a year later? So we are imagining at this point a year has passed and now we're selling the stocks because we're saying hey the stock went up to $47. It's time to sell. Buy low, sell high that's my motto. That's how I invest in stuff so it's time to sell the stuff. So we're going to say the proceeds before the commission are going to be the 300 shares. Now note we don't have to sell all the shares. We could try to figure this out and think about what if I only sold 200 shares or something like that. But we're going to assume we sold all the shares the 300 shares and then the price is $47. That's what we're selling them for. We bought them for 14 selling them for 47. That would give us proceeds of the 14100. Again we paid the 14 per share. We've paid the 4206. So this are the proceeds and then we had to pay the commissions however to make that happen of $10. So we got to bring that proceeds down this time because this is money going in whereas this was money going out for the payment. So that's going to come out to the 1490. So the capital gains. What is our gains that we have when we say capital gains? That's kind of oftentimes a tax term because that implies we're going to pay taxes on them. Capital gains is a type of tax generally. You can also call it realized gains. We actually realized the proceeds here. Notice that if we did not sell the stock you could still say okay look I've got a value of the stock at the 14100. I wouldn't have to pay the commissions in that case and that would be great. You'd still have a gain. You might call it an unrealized gain. It might not have a tax implication until the point in time that you sell it because it's still in stocks it's somewhat volatile so the price could still fluctuate more so than possibly the fluctuation of cash or bonds or something like that generally. So we're going to say then the 1490 is what we sold it for. That's this number and then this number is what we bought it for taking into consider the commissions. So that's a capital gains huge gains of 9,840. See I'm a genius investor. This is the kind of returns that make people stop their day job and think they're going to go in full time. Look at this. Look at what I can do here. So total dividend income was the 640 or 630. We got 630 from the dividends and we sold the stock at the 9,884. So look at that. 10,514 total returns. What if I was going to take that on an ROI percentage because this was exactly a year here so that's why we kind of did it in terms of a year and even if you didn't realize the gains here you could try to figure kind of your unrealized gains and do a similar kind of calculation. So we could say look at that 10,514 and then and I put down the total cost to purchase was 4,206. So I put down 4,206 to get 10,514. That's a return of like 250% 514,4206. That's right. If I move the decimal about 250% rounded. I'm going into that. I'm a day trader now all of a sudden. But I probably can't do that again. Anyways so that's how it now you might do the calculation this this way. This is another way you might look at it. You might say well let's calculate the capital gains this way. We're going to say the gains per share before commissions. Oftentimes it's nice to be able to take the sales price per share $47. That's what we sold them for minus the cost per share of $33. Now the commissions kind of muddy the waters a little bit but the commissions are somewhat insignificant depending on the level of trading your half. So you could say okay I got the 47 minus the 14. That means I made a gain per share before commissions of $33. That's one way you can kind of look at it. You could say okay then the number of shares that we dealt with was going to be a gain before commissions of $9,900 so that's a useful kind of way to do the calculation and then the commissions you could tack on then the commissions are the $6 and the $10 to make that happen and so if I take the $9,000 minus the 16 we get to the $9,884 which should match up to the capital gains $9,884 here and then of course we have the dividends as well. So notice that these tables there's pretty basic calculations. You could scratch this down with chicken scratch and follow along and what not but they're really useful to practice putting in Excel and just kind of visualizing these tables and if you should be able to after you get good at it to create these tables about as quickly as you can do the chicken scratch on a piece of paper and if you can do that then you can of course do a lot more because your head's not holding so much when you're doing the chicken scratch you can't even reach your own writing and what not. So I would highly recommend practicing these type of problems in Excel formatting them multiple different ways.