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Hello John
TKQ Co has just paid a dividend of 21 cents per share and its share price one year ago was
$3.10 per share. The total shareholder return for the year was 19.7%.
What is the current share price (to two decimal places)?-Could you please explain how to obtain the answer? In the book, the working is as follows and I have no idea how to understanding it.
Monetary value of return = $3.10 × 1.197 = $3.71
Current share price = $3.71 – $0.21 = $3.50Thanks
As I explain in Chapter 2 of our free lecture notes (and the lectures working through the chapter), the total shareholder return is the change in the share price over the year together with the dividend received during the year, expressed as a % of the share price at the start of the year.
Therefore the change in the share price plus the dividend must equal 19.7% x $3.10 = $0.6107
The dividend was $0.21, and therefore the increase in the share price was $0.40, and therefore the current share price must be $3.10 + $0.40 = $3.50.
Please do watch the lectures and see the two examples of this that I work through.
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