Question

This morning you purchased one share of stock for $14. The stock pays $.20 per share each quarter as a dividend. What must the stock price be one year from now if you want to earn a total return of 12 percent for the year

Answer 1

$14.88

Step-by-step explanation:

The computation of the stock price is given below:

A total return of 12% means that

= 0.12 × 14

= $1.68 in a year.

Now

The total dividend payments for 4 quarters is

= 0.2 × 4

= $0.8.

Now the price of the stock should increase by

= 1.68 - 0.8

= 0.88

So the stock price one year from now is

= 14 + 0.88

= $14.88