Mark W.
asked • 05/28/19Finance Stock Price
Old School Corporation stock currently trades at $22.37 in the secondary market. Investors would like a 19.00% return to hold the stock in the upcoming year. If the stock is expected to pay a $1.56 dividend next year, what must the stock sell for in one year to give you the desired return?
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1 Expert Answer
Lenny D. answered • 05/28/19
Tutor
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Financial Professional with many years of Wall Street Experience
If The stock is 22.37 we want 19% more than that in a year or 22.37*(1+19%) or 26.62. if we get 1.56 dividend we need the price to be 26.62- 1.56 = 25.06
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Jack V.
Find the desired return: 22.37 * .19 = 4.25. Once you know what the investors want to earn, and you are told that they will receive 1.56 through an upcoming dividend, calculate the remaining return they need to reach their desired level. 4.25 - 1.56 = $2.69 return still needed to reach desired level. This being said, add that amount to the trading price to answer the question of what the stock needs to sell for in one year ($25.06)05/28/19