If a stock is purchased for $30 a share and pays $5 per share in dividends per year, what selling price at the end of the year would result in a return of 50 percent?

Question

Quizplus · Accepted Answer

To calculate the return on investment, we need to consider both the dividend income and the capital gain. 
Since the stock pays $5 per share in dividends, the dividend yield is $5/$30 = 16.67%. 
To get a total return of 50%, we need to have a capital gain of 33.33%. 
Let's call the selling price at the end of the year "x." 
We know that the capital gain is equal to x-30. 
So we need to solve the equation (x-30)/30 = 33.33%, which gives x = $40. 
Therefore, the best choice is B.

If a Stock Is Purchased for $30 a Share and Pays