posted by Donna .
"An investor is proposing to buy shares in XYZ company. XYZ company is expected to an annual dividend of $2.50 per share. The current share price is $50.00. If the investor requires an annual rate of return of10%, what must the share price be in 1 yr?.
The investor wants to make 5 dollars per share in the first year, he makes 2.50 from dividend, so needs the stock to appreciate by 2.50 or have a price of 52.50. That return assumes he sells it.