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18 March, 13:56

Abby purchased 100 shares of her dad's favorite stock for $25.80 per share exactly 1 year ago, commission free. She sold it today for a total amount of $2865. She plans to invest the entire amount in a different corporation's stock today, but must now pay a $50 commission fee. If she plans to sell this new stock exactly 1 year from now and realize the same return as she has just made, what must be the total amount she receives next year? Include the commission fee as a part of the purchase price, but neglect any tax effects.

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  1. 18 March, 14:36
    0
    2865.09

    Explanation:

    V0 = #Shares * Price per Share

    V0 = 100 * 25.8 = 2580

    V1 = Today's Value

    V1 = 2865

    Return Year 1 = (V1 - V0) / V0

    Return Year 1 = (2865 - 2580) / 2580

    Return Year 1 = 11.05%

    New Investment

    Abby's desire is to get the same return of 11.05%. So for the next year her investment should be 2580 * (1 + return) - -> 2580 * (1 + 0.1105) = 2865.09.

    Remember that we are assuming that the 50 are part of the purchase price and we are assuming that she did not add any money.
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