A common stock is held for 2 years,during which time it receives an annual dividend of $20.The stock was sold for $100 and generated an average annual return of 32%.What price was paid for the stock?
A) $61.60
B) $64.80
C) $88.00
D) $90.91

Question

Quizplus · Accepted Answer

The average annual return is the sum of the dividend yield and the capital gains yield. The dividend yield is the annual dividend divided by the purchase price, and the capital gains yield is the difference between the selling price and the purchase price divided by the purchase price. In this case, the average annual return is 32%, the annual dividend is $20, and the selling price is $100. So, the purchase price is $100 / (1 + 0.32) = $75.91.

A Common Stock Is Held for 2 Years,during Which Time