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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Investing in Stocks

Kavita holds a stock currently priced at Rs 500. She expects the share to pay a dividend of Rs 20 next year, and she will then sell it. Her required return is 12%. What is the minimum price at the end of the year at which she should be willing to sell to just achieve her required return?

She needs a year-end price of Rs 540. A 12% return on Rs 500 requires a total of Rs 560 at year end. Since Rs 20 arrives as dividend, the remaining Rs 540 must come from the sale price.

  1. ARs 540Correct
  2. BRs 520
  3. CRs 560
  4. DRs 480

Explanation

Required end value = 500 x 1.12 = Rs 560 total. Dividend contributes Rs 20, so the price needed is 560 - 20 = Rs 540. Rs 560 ignores the dividend; Rs 520 wrongly subtracts 40; Rs 480 subtracts the dividend from the wrong base.

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