Question

a stock is selling for $20.00(Po). the projected selling price one year from now(P1) is $22.50, and the projected dividend payment one yr from now (D1) is $1.00. What is the expected return on an investment in the stock made today?

Answer 1

The expected return on the stock investment made today, given the projected selling price and expected dividend, is calculated to be 17.5% for the year.

Step-by-step explanation:

The expected return on an investment in the stock made today can be calculated by adding the projected dividend payment and the increase in stock price, then dividing by the initial stock price. To compute this, you take the projected selling price one year from now ($22.50) and add the projected dividend payment ($1.00), which totals $23.50. You then subtract the current stock price ($20.00) from this total to get the gain of $3.50 over the course of the year. Finally, divide this gain by the initial investment of $20.00 to get the expected return rate, which in this case is 17.5%.