Question

You are considering acquiring a common share of Sahali Shopping Center Corporation that you would like to hold for 1 year. You expect to receive both $1.35 in dividends and $45 from the sale of the share at the end of the year. The maximum price you would pay for a share today is __________ if you wanted to earn a 10% return.

Answer 1

$42.13

Step-by-step explanation:

HPR = [ Income + Vn - V0 ] / V0

Where

HPR = Holding Period Return = 10%

I = Income / Dividend = $1.35

Vn = Ending value of Investment = $45

V0 = Beginning Value of Investment = ?

Placing Value in the formula

10% = [ $1.34 + $45 - V0 ] / V0

0.1 V0 = $1.34 + $45 - V0

0.1V0 + V0 = $46.34

1.1V0 = $46.34

V0 = $46.34 / 1.1 = $42.13