Whether the actual stock price in the market can be under, over, or above its intrinsic value from the standpoint of the stockholders and CEO, who are about to exercise a million dollars in options and retire. Introduction: Intrinsic Value: An estimated value of the stock which can be determined by considering the exact risk and return. The intrinsic value can be estimated but cannot be measured precisely. The intrinsic value can be calculated by professional analyst on the basis of data provided by the company. Market price: The market price is the current value of the stock in which it is traded in the market. It is available in the newspaper and websites.

Question

Assume an investor buys a share of stock for $18 at t = 0 and at the end of the next year (t = 1) , he buys 12 shares with a unit price of $9 per share. At the end of Year 2 (t = 2) , the investor sells all shares for $40 per share. At the end of each year in the holding period, the stock paid a $5.00 per share dividend. What is the annual time-weighted rate of return?

Answer 1

Question

Chapter 1, Problem 4Q

Summary Introduction

To identify: Whether the actual stock price in the market can be under, over, or above its intrinsic value from the standpoint of the stockholders and CEO, who are about to exercise a million dollars in options and retire.

Introduction:

Intrinsic Value: An estimated value of the stock which can be determined by considering the exact risk and return. The intrinsic value can be estimated but cannot be measured precisely. The intrinsic value can be calculated by professional analyst on the basis of data provided by the company.

Market price: The market price is the current value of the stock in which it is traded in the market. It is available in the newspaper and websites.

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Assume an investor buys a share of stock for $18 at t = 0 and at the end of the next year (t = 1) , he buys 12 shares with a unit price of $9 per share. At the end of Year 2 (t = 2) , the investor sells all shares for $40 per share. At the end of each year in the holding period, the stock paid a $5.00 per share dividend. What is the annual time-weighted rate of return?

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