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.