3. You plan to purchase the common stock of Negan/Saviors Enterprises for $112 p

Question

3. You plan to purchase the common stock of Negan/Saviors Enterprises for $112 per share, and expect that it will pay you $15 in dividends over the coming year. In one year you plan to sell your shares Calculate the expected holding period return under each scenario (ignore taxes): a) The price of Negan/Saviors one year from now is $129. b) The price of Negan/Saviors one year from now is $180 c) The price of Negan/Saviors one year from now is $112 d) The price of Negan/Saviors one year from now is $72

Explanation / Answer

Holding period return = [(P1- P0) + D]/P0

P0 = Today' share price

P1 = Share price after 1 year

D = Expected dividend on shares

(a) Holding period return = [(129 - 112) + 15]/112

= 32/112

= 28.57%

(b)

Holding period return = [(180 - 112) + 15]/112

= 83/112

= 74.11%

(c)

Holding period return = [(112 - 112) + 15]/112

= 15/112

= 13.39%

(d)

Holding period return = [(72 - 112) + 15]/112

= -25/112

= -22.32%

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