Question

Abby purchased 100 shares of her dad’s favorite stock for $25.80 per share exactly 1 year ago, commission free. She sold it today for a total amount of $2865. She plans to invest the entire amount in a different corporation’s stock today, but must now pay a $50 commission fee. If she plans to sell this new stock exactly 1 year from now and realize the same return as she has just made, what must be the total amount she receives next year? Include the commission fee as a part of the purchase price, but neglect any tax effects.

Answer 1

Answer:

2865.09

Explanation:

V0 = #Shares * Price per Share

V0 = 100 * 25.8 = 2580

V1 = Today´s Value

V1 = 2865

Return Year 1 = (V1 - V0) / V0

Return Year 1 = (2865 - 2580)/2580

Return Year 1 = 11.05%

New Investment

Abby's desire is to get the same return of 11.05%. So for the next year her investment should be 2580 * (1 + return) --> 2580 * (1 + 0.1105) = 2865.09.

Remember that we are assuming that the 50 are part of the purchase price and we are assuming that she did not add any money.