Question

Gunther earned a 62.5 percent return on a stock that he purchased one year ago. The stock is now worth $12, and he received a dividend of $1 during the year. How much did Gunther originally pay for the stock?

Answer 1

Answer:

Originally pay for the stock = $8

Explanation:

Given:

Total return = 62.5%

Value of stock (after 1 year) = $12

Dividend during the year = $1

Originally pay for the stock = ?

Computation:

$Total\ return = [\frac{Dividend + (Value\ of\ stock\ after\ 1\ year - Purchase\ Value)}{Purchase\ Value} ]\times 100$

$62.5 = [\frac{1 + (12 - Purchase\ Value)}{Purchase\ Value} ]\times 100\\\\0.625 Purchase\ Value = 1 + 12 - Purchase\ Value\\\\1.625 Purchase\ Value = 13\\\\Purchase\ Value = 8$

Originally pay for the stock = $8