Question

Common stock valuelong dash—Zero growth  Personal Finance Problem   Kelsey​ Drums, Inc., is a​ well-established supplier of fine percussion instruments to orchestras all over the United States. The​ company's class A common stock has paid a dividend of ​$4.744.74 per share per year for the last 1313 years. Management expects to continue to pay at that amount for the foreseeable future. Kim Arnold purchased 100100 shares of Kelsey class A common 55 years ago at a time when the required rate of return for the stock was 8.38.3​%. She wants to sell her shares today. The current required rate of return for the stock is 12.3012.30​%. How much total capital gain or loss will Kim have on her​ shares? The value of the stock when Kim purchased it was ​$nothing per share.  ​(Round to the nearest​ cent.)

Answer 1

No. of shares =						$ 100.00
Dividend (d1) =						$       4.74
Required rate of return at time of purchase =					8.3% or	0.083
Required rate of return at current time =					12.30% or	0.123
Value of stock formula = Dividend / Required rate of return
At time of purchase, value of stock = 4.74 / 0.083 =						$    57.11
At time of sale, value of stock = 4.74/0.123						$    38.54
Total capital gain or loss = No. of shares * (sale price - purchase price)
100 * (38.54 - 57.11)
$ -1,857.18
This amount is negative, So kim will have capital loss of $1,857.18.
Value of share at time of purchase shall be $57.11.