Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today?

Question

Kiana Raymond

Business

20 December, 03:08

Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today?

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Answers (1)

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Adelyn Mcmahon · Answer 1

Today's price = = $30

Explanation:

The question requires the most price one is willing to pay today for the following

a) a stock that will sell for $30 in 1 year

b) Payout a dividend of $3

3) with a return rate on equity of 10%

To calculate the price for today or the present value,

we add the dividend expected to the selling price as follows

$3 + $30 = $33

The rate = 10% and the period = 1 Year

Present value = Future Value / (1+r) ∧n

= 33 / 1.1

= $30