calculating dividends

Question

A stock costs $80 and pays a $4 dividend each year for three years.

a.) If an investor buys the stock for $80 and expects to sell it for $100 after three years, what is the    anticipated annual rate of return?

b.) What would be the rate of return if the purchase price were $60?

c.)  What would be the rate of return if the dividend were $1 annually and the purchase price were $80 and the sale price were $100?

Answer 1

 

 

Assume: all cash flows start are at the beginning of the period : paid out (negative), received (positive). each stock sale and final dividend payment to occur at the beginning of the 4th year.

 

a)   12% =IRR(-80,4,4,104)

 

b)   24% =IRR(-60,4,4,104)

 

c)     9% =IRR(-80,1,1,101)

 

 

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