Question

Jack earned a 16.4 per cent return on a share that he purchased one year ago. The share is now worth $10.70, and he just received a dividend of $0.62. How much did Jack originally pay for the share? (in dollars to the nearest cent; don’t use $ sign)

Answer 1

Current Price of 10.7$ is after receiving 0.62$ of Dividend.

Thus, Price before Dividend = 10.7 + 0.62 = 11.32 $

Total return is 16.4% and price of 11.32 corresponds to price of share including total return.

Purchase Price * ( 1 + Total Return ) = Price corresponding to total return

Thus, Purchase price of share = Price corresponding to total return / ( 1 + Total Return) = 11.32 / ( 1 + 16.4%) = 11.32 / 1.164 = 9.73 $

Thus, Jack originally paid 9.7 $ for the share