You have just purchased a share of stock for $ 18.86 The company is expected to...
You have just purchased a share of stock for
$ 18.86 The company is expected to pay a dividend of
$ 0.58 per share in exactly one year. If you want to earn a
10.6 % return on your investment, what price do you need if you expect to sell the share immediately after it pays the dividend?
Homework Answers
Given Purchased a share of stock P0 =18.86
Expected Dividend D1 =0.58
Return on investment Re. =10.6%
Now you need the price expected to sell the share immediately after pays the dividend P1 =P1
Formula for calculating the price of a share is
P0 = (P1 + D1)/(1 + Re)
18.86 =(P1 +0.58)/(1+10.6%)
P1+0.58 =18.86 * 1.106
P1 =20.85916 - 0.58
P1 = $20.27916 =$20.28
After one year the price is $20.28
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