Question

Question 2 1 pts Rose purchased a share of a stock for 116. The stock paid a dividend of 6 after six months and another dividend of 3 after one year. Immediately after the second dividend was paid, the price of the stock was 125. Calculate the total annual return on Rose's investment. Provide your answer as an annual effective rate. 14.48% 14.00% 15.44% O 14.96% 15.91% 1 pts Question 3 Ivy purchased one share of a stock. One year later, the stock paid a dividend of 3. The dividend yield on Ivy's investment was 3.8% and her total annual return was 8.7. Calculate the price of the stock one year after Ivy's purchase. O 85.71 Type here to search

Answer 1

Present Value = Future Value/(1+Interest Rate)^{number of periods}

In given case, 116 is the Present Value, and 6 is the future value after 6 months i.e. 1 period and 128 is the future value after 1 year

Therefore, 116 = 6/(1+i) + 128/(1+i)²

Applying trial & error,

Taking i = 7.72%(15.44) = 0.0772

6/(1+0.0772) + 128/(1+0.0772)² = 115.88

Taking i = 7.48%(14.96/2) = 0.0748

6/(1+0.0748) + 128/(1+0.0748)² = 116.38

Taking i= 7.66% = 0.0766

6/(1+0.0766) + 128(1+0.0766)² = 116

Effective Interest Rate = i*2

Therefore, Exact Answer will be 7.66%*2 = 15.32%

But there is no such option. Hence, the answer nearest to it is 15.44%(difference might be due to rounding)

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