Leonardo’s broker called him recently with an offer to buy Downliner W

Leonardo’s broker called him recently with an offer to buy Downliner Waterproof Furnishings Corp common stock for $40 per share. His broker promised to repurchase the shares in one year for $45 per share.

If Leonardo accepts this deal, what is his required return? The stock is not expected to pay a dividend next year.
A) 15.3%
B) 10.0%
C) 30.6%
D) 15.1%
E) 12.5%

ANSWER

E