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 $1.25 in dividends and $35 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 12% return. A. $31.25 B. $32.37 C. $38.47 D. $41.32

Answer 1

B. $32.37

Step-by-step explanation:

The computation of the maximum price for paying the share today is shown below:

Let us assume the buying price be x

Now we applying the following formula

Return = (sale price - buy price + dividend) ÷ (buy price)

12% = ($35 - x + $1.25) ÷ x

0.12 = $36.25 - x

1.12x = $36.25

x = $36.25 ÷ 1.12

= $32.37

Hence, the correct option is B.