Question

You purchased Butterfly Wing Corp. stock exactly one year ago at a price of $74.18 per share. Over the past year, the stock paid dividends of $2.20 per share. Today, you sold your stock and earned a total return of 14.52 percent. What was the price at which you sold the stock? A. $84.95 B. $87.07 C. $82.75 D. $90.61 E. $89.20

Answer 1

Solution :

Total return is the return earned on an investment for the period during which it is held.

The formula for calculating the total return is

Total Return = [ ( Sale price + Dividend earned during the period – Purchase Price ) / Purchase Price ]

As per the information given in the question is

Purchase price in Year 1 : $ 74.18

Dividend Paid = $ 2.20

Total return earned = 14.52 % = 0.1452

Sale price in Year 4 : To find ; Let the same be X ;

Applying the above values in the formula we have

0.1452 = [ ( X + 2.20 - 74.18 ) / 74.18 ]

0.1452 * 74.18 = ( X + 2.20 - 74.18 )

10.7709 = ( X – 71.9800 )

Thus X = 10.7709 + 71.9800 = $ 82.7509

= $ 82.75 ( When rounded off to two decimal places )

Thus the Solution is Option C. $ 82.75

Thus the price at which the stock is sold = $ 82.75 .