Question

Question 8 (1 point) Saved What is the rate of return if you purchase a stock today for $45 and sell it in five years for $53? Assume the stock pays an annual dividend of $2.3. At the end of year: 1 2 3 Purchase Price Dividend Selling Price 45 1 2.3 2.3 2.3 2.3 2.3 53 9.00% 8.13% 7.87% 8.64%

Answer 1

Purchase Price = $45.00
Annual Dividend = $2.30
Selling Price = $53.00
Period = 5 years

Let rate of return be i%

$45.00 = $2.30/(1+i) + $2.30/(1+i)^2 + $2.30/(1+i)^3 + $2.30/(1+i)^4 + $2.30/(1+i)^5 + $53.00/(1+i)^5

Using financial calculator, i = 8.13%

Annual Rate of Return = 8.13%