Question

Shane purchased a stock this morning at a cost of $13 a share. He expects to receive an annual dividend of $.27 a share next year. What will the price of the stock have to be one year from today if Shane is to earn a 8 percent rate of return on this investment?

Answer 1

Answer:

$13.77

Explanation:

In order for Shane to earn an 8 percent rate of return on his investment, the difference between the future price and the current price, added to the dividends received, and then divided by the current stock price must equal 8%:

$0.08=\frac{(P-13)+0.27}{13} \\P=\ 13.77$

Stock price will have to be $13.77 one year from today.