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Silicon Ltd. has a current stock price of $50.9 per share, is expected to pay an annual dividend of $3.1 in one year, and its expected price right after paying that dividend is $58.2. What is the expected capital gain rate for Silicon Ltd.? (State your answer in percentage terms and round to 2 decimal places, e.g. put 4.59 if your answer is 0.04586384)

Question

Silicon Ltd. has a current stock price of 50.9pershare,isexpectedtopayanannualdividendof50.9 per share, is expected to pay an annual dividend of 3.1 in one year, and its expected price right after paying that dividend is $58.2. What is the expected capital gain rate for Silicon Ltd.? (State your answer in percentage terms and round to 2 decimal places, e.g. put 4.59 if your answer is 0.04586384)

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Solution

The capital gain rate can be calculated using the formula:

Capital Gain Rate = (Expected Price - Current Price) / Current Price

Here, the Expected Price is 58.2andtheCurrentPriceis58.2 and the Current Price is 50.9.

So,

Capital Gain Rate = (58.258.2 - 50.9) / $50.9

Calculate the difference between the Expected Price and the Current Price:

58.258.2 - 50.9 = $7.3

Then, divide this difference by the Current Price:

7.3/7.3 / 50.9 = 0.14342

To convert this to a percentage, multiply by 100:

0.14342 * 100 = 14.342%

Rounding to two decimal places, the expected capital gain rate for Silicon Ltd. is 14.34%.

This problem has been solved

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