Gunther earned a 62.5 percent return on a stock that he purchased one year ago. The stock is now worth $12, and he received a dividend of $1 during the year. How much did Gunther originally pay for the stock?
A) $7.00
B) $7.50
C) $8.00
D) $8.50

Question

Quizplus · Accepted Answer

If the stock is currently worth $12 and Gunther received a $1 dividend, then the total return on the stock is $13.

To find the original price Gunther paid for the stock, we can use the formula:

original price x (1 + return rate) = current price + dividends

Let x be the original price. We know the return rate is 62.5% or 0.625, so we can set up the equation:

x(1 + 0.625) = 12 + 1

Simplifying, we get:

1.625x = 13

Dividing both sides by 1.625, we get:

x = 8

Therefore, Gunther originally paid $8.00 for the stock.

Gunther Earned a 62