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Suppose that a stock is expected to pay a ​$11 dividend at the end of this year and that your required return on equity investments is 99​%. Using a​ one-period model of stock price​ determination, if you expect to sell a stock you buy today a year later for ​$17.017.0​, you will be willing to pay for the stock the amount ​$nothing. ​(Round your response to the nearest two decimal​ places.)

Respuesta :

Answer:

If we expect to a 99% return on a stock, the dividend plus the capital gains on it should be 99% more than the original price of the stock. For example if a stock sells for $150 one year from now and gives a dividend of $49, we would be willing to pay$ 100 for it if we require a 99% return because $49 + (150-100) is 99% of $100. So in this case we can use an equation

Sale price- Buying Price + Dividend= 99% of Buying price

17.017 -Buying Price + 11= 0.99Buying Price

17.017+ 11 = 1.99 Buying Price

28.017= 1.99 Buying Price

Buying Price= 28.017/1.99

Buying Price = 14.07

We can also Check our answer if its correct by checking if the capital gains plus dividend is 99% of the buying price.

17.017-14.07 +11=13.947

13.947/14.07= 0.99

=99%

This proves that our answer is correct.

Explanation: