Question

If the stock sells for $11 today, and it is expected to rise to

$12 at the end of the year, then the expected capital gain is

Answer 1

The expected capital gain is $1.

Step-by-step explanation:

Investors can calculate the expected capital gain by subtracting the current stock price from the expected future price. In this case, the formula is:

`\[ \text{Expected Capital Gain} = \text{Expected Future Price} - \text{Current Stock Price} \]`

Substituting the given values:

`\[ \text{Expected Capital Gain} = $12 - $11 = $1 \]`

Therefore, the expected capital gain is $1. This means that if the stock is bought at the current price of $11 and it rises to $12 at the end of the year, the investor can expect a capital gain of $1 per share.

Investors often use expected capital gain calculations to assess potential returns on their investments. It provides insight into the profitability of holding a stock over a specific period. In this scenario, with an expected capital gain of $1, investors may find the investment attractive, considering the percentage gain relative to the initial investment.

However, it's essential to consider other factors such as associated risks and market conditions before making investment decisions.

The complete question is:

"If an investor purchases a stock for $11 today, and it is anticipated to increase in value to $12 at the end of the year, what would be the expected capital gain?"