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You are considering the purchase of a certain stock. You expect to own the stock for the next four years. The current market price of the stock is $24.50 and you expect to sell it for $55 in four years. You also expect the stock to pay an annual dividend of $1.25 at the end of year 1, $1.35 at the end of year 2, $1.45 at the end of year 3 and $1.55 at the end of year 4. What is your expected return from this investment?

a.21.78 percent
b.18.36 percent
c.32.85 percent
d.26.68 percent
e.None of these choices are correct.

User Jsonbourne
by
7.2k points

2 Answers

1 vote

I think the correct choice would be B


User Anahata
by
7.3k points
6 votes

Answer:

18.36% (B)

Step-by-step explanation:

Current market price of stock = $24.50

Amount to be sold after four years = $55

Total dividend generated for four years= sum total of individual dividend each year.

= $1.25+$1.35+$1.45+$1.55

= $5.60

%ROI = Dividend/Return × 100%

Return = Amount generated after four years - initial stock price

Return = $55-$24.50

Return = $30.50

%ROI = $5.6/$30.50 × 100

%ROI = 0.1836 × 100

%ROI = 18.36%

User Jobwat
by
8.5k points