Question

You expect Technomess Company common stock to pay a dividend of $2.40 one year from now. You can buy the stock now for $52, and you plan to sell the stock at the end of one year. Given the risk of the stock, your required rate of return is 16%. For what price would you need to sell your stock in one year in order to earn your required rate of return?a) $58 b) S15 c) $22 d) $60 e) $63

Answer 1

Holding Period Return = Required rate of return = 16% = 0.16

Holding Period Return of Technomess stock = ( Dividend realized + Capital Gain) / Purchase price

= ( $ 2.40 + ( $ X - $ 52) / $ 52

= ( X - 49.6) / 52 (Assume X as selling price of stock)

0.16 * 52 = X - 49.6

8.32 + 49.6 = X

X = 57.92

= $ 58 (Approx.)

Step-by-step explanation:

Refer to the answer.