Let's suppose you recently bought a share of BHP Billiton for $110.00. You plan to sell the share next year. You estimate that there is a 25% chance that the shares will sell for $115 at the end of 1 year, 50% chance it will sell for $120 and 25% chance it will sell for $112. Moreover, you estimate that the company will pay a $3 dividend per share under any circumstances. What is your total expected return?
A) 8.27%.
B) 8.86%.
C) 22.25%.
D) 23.64%.

Question

Quizplus · Accepted Answer

Using the estimated return formula, the answer is 8.86% (you need to cater for the dividend per share of $3 in the calculation).

Let's Suppose You Recently Bought a Share of BHP Billiton