A-ZеВookChapter 12Financial Planning Exercise 2Calculating expected return on an investmentAn investor is thinking about buying some shares of Health Diagnostics, Inc., at $50 a share. She expects the price of the stock to rise to $90 a shareover the next 3 years. During that time, she also expects to receive annual dividends of $4 per share. Assuming that the investor's expectations (aboutedthe future price of the stock and the dividends that it pays) hold up, what rate of return can the investor expect to earn on this investment? (Hint: Useeither the approximate yield formula or a financial calculator to solve this problem.) Round the answer to two decimal places.%Grade it NowSave & ContinueContinue without savingNOV14átv A wMacBook Air

Given data; Current price per share = $50 price per share after 3 years = $90 annual dividend = $ 4 Total dividend in 3 years = 4*3 = 12The formula for expected return in the investment is; expected return = D + P1 -P0P0 where; D = total dividend = $ 12 P1 = price per share after 3 years = $ 90 P0 = current price per share = $50 Inserting the values in formula, we have; expected return = 12 + 90 - 5050 expected return = 1.04 or 104% Therefore, the expected rate of return on the investment is 104%

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eBook Chapter 12 Financial Planning Exercise 2 Calculating expected return on an investment An investor is thinking about buying some shares of Health Diagnostics, Inc., at $50 a share. She expects the price of the stock to rise to $90 a share over the next 3 years. During that time, she also expects to receive annual dividends of $4 per share. Assuming that the investor's expectations (about the future price of the stock and the dividends that it pays) hold up, what rate of return can the investor expect to earn on this investment? (Hint: Use either the approximate yield formula or a financial calculator to solve this problem.) Round the answer to two decimal places. %

eBook Chapter 12 Financial Planning Exercise 2 Calculating expected return on an investment An investor is thinking about buying some shares of Health Diagnostics, Inc., at $50 a share. She expects the price of the stock to rise to $90 a share over the next 3 years. During that time, she also expects to receive annual dividends of $4 per share. Assuming that the investor's expectations (about the future price of the stock and the dividends that it pays) hold up, what rate of return can the investor expect to earn on this investment? (Hint: Use either the approximate yield formula or a financial calculator to solve this problem.) Round the answer to two decimal places. %

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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