Personal Finance Problem P76 Common stock value Zcro growth

Personal Finance Problem P7-6 Common stock value: Zcro growth Kelsey Drums, Inc, is a well-established supplier of fine percussion instruments to orchestras all over the United States The company\'s class A common stock has paid a dividend of S5.00 per share per year for the last 15 years. Management expects to continue to pay at that amount for the foreseeable future. Sally Talbot purchased 100 shares of Kebey dass A common 10 years ago at a time when the required rate of return for the stock was 16%. She wants to sell her shares today. The current required rate of return for the stock is 12%. How much capeal gain or loss will Sally have on her shares?

Solution

Required ROR when shares were purchased (price per share at purchase) = $5 / 0.16 = $31.25 per share

Current share price as of today = $5 / 0.12 = $41.67 per share

Difference in share prices = $41.67 - 31.25 = $10.42

Total capital gain = $10.42 x 100 shares = $1,042