Question

This morning you purchased a stock that just paid an annual dividend of $2.20 per share. You require a return of 9.3 percent and the dividend will increase at an annual growth rate of 3.1 percent. If you sell this stock in three years, what will your capital gain be?

Answer 1

Answer:

The capital gain is $3.30

Explanation:

Capital gain = Ending price - Initial price

Initial price = [$2.20(1 + .031)]/(.093 − .031) = $36.58

Ending price = [$2.20(1 + (.031*4))]/(.093 − .031) = $39.88

Capital gains = $39.88 − 36.58 = $3.30