Suppose that $10,000 was invested in the stock of General Medical Corporation with intention of selling after one year. The stock pays no dividends, so the overall return will be based upon the price of the stock when sold. The opportunity cost of capital on stock is 10 percent.
a. To begin, suppose that the stock sale nets $11,500. Find out the dollar return on the stock investment? Find out the rate of return?
b. Suppose that the stock price falls and the net is only $9,500 when the stock is sold. Find the dollar return and rate of return?
c. Suppose that the sale prices remain the same but stock is held for two years. Now, Find the dollar return and rate of return?