Question

You are considering acquiring a common share of Grand Shopping Center Corporation that you would like to hold for 1 year. You expect to receive both $1.25 in dividends and $41 from the sale of the share at the end of the year. If you wanted to earn a 13% return, the maximum price you would pay for a share today is:

Question options:

	$42.05
	$31.25
	$38.41
	$37.39

Answer 1

Given,

Dividend in 1 year = $1.25

Price in 1 year = $41

Return = 13% or 0.13

Solution :-

Price today = (Dividend in 1 year + price in 1 year)/(1 + return)

= ($1.25 + $41)/(1 + 0.13)

= $42.25/1.13 = $37.39

The maximum price you would pay for a share today is $37.39