You are considering investing in the stock of PartyWagon, Inc. You expect a dividend of $1.25 next year, $1.31 in year 2, and $1

Question

2 years ago

13

You are considering investing in the stock of PartyWagon, Inc. You expect a dividend of $1.25 next year, $1.31 in year 2, and $1

.38 in year 3. At the end of three years, you expect to be able to sell the stock for $65. If you can purchase the stock for $32, what rate of return do you expect to earn

Business

1 answer:

stich3 [128] · Answer 1 · 2022-11-13T19:55:55+03:00

Answer: 29.93%

Explanation:

You can use Excel to solve for this.

Bear in mind that when given a series of cashflows, the expected return is the Internal Rate of Return (IRR).

Initial investment = $32

First cashflow = $1.25

Second cashflow = $1.31

Third cashflow = $1.38 + $65 selling price = $66.38

IRR = 29.93%