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Fred Flintlock wants to earn a total of 10% on his investments. He recently purchased shares of ABC stock at a price of $20 a share. The stock pays a $1 a year dividend. The price of ABC stock needs to _____ if Fred is to achieve his 10% rate of return.

A. remain constant
B. decrease by 5%
C. increase by 5%
D. increase by 10%
E. increase by 15%

Respuesta :

Answer:

Option (C) is correct.

Explanation:

Return on the stock = (Dividend ÷ Investment) + (capital gain ÷ investment )

= (Dividend ÷ Investment) + (Final price of the stock - initial price of the stock) ÷ Investment

10 = (1 ÷ 20) × 100 + ((final price - 20) ÷ 20) × 100

10 = 5 + 5 × ( final price - 20)

Final price = 21

Therefore, the stock price should increase by [(21 - 20) ÷ 20] × 100

                                                                            = 5%

Option (C) is correct i.e. C. increase by 5%

  • The calculation is as follows:

We know that

Return on the stock = (Dividend ÷ Investment) + (capital gain ÷ investment )

= (Dividend ÷ Investment) + (Final price of the stock - initial price of the stock) ÷ Investment  

10 = (1 ÷ 20) × 100 + ((final price - 20) ÷ 20) × 100  

10 = 5 + 5 × ( final price - 20)  

Final price = 21

Now  

Therefore, the stock price should increase by [(21 - 20) ÷ 20] × 100

= 5%

Learn more: brainly.com/question/16911495

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