A stock is expected to pay the following dividends per share over the next four years, respectively: $0.00, $2.30, 2.60, and $2.90. If you expect to be able to sell the stock for $95.83 in four years and your required rate of return is 6%, what is the most that you should be willing to pay for a share of this stock today?

Question

Leon

Business

7 October, 01:18

A stock is expected to pay the following dividends per share over the next four years, respectively: $0.00, $2.30, 2.60, and $2.90. If you expect to be able to sell the stock for $95.83 in four years and your required rate of return is 6%, what is the most that you should be willing to pay for a share of this stock today?

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Answers (1)

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Wesley Mckay · Answer 1

present value of stoke combine equation is $82.43

Explanation:

Given data

no of period = 4

discount rate = 6% = 0.06

dividends = $0.00, $2.30, 2.60, and $2.90

to find out

current stoke price

solution

we know dividend is 0 for st year so present value for 1st year will be 0 ... 1

now we calculate

present value 2nd year dividend is = 2.30 / (1+0.06) ^2

present value 2nd year dividend is = $2.05 ... 2

present value 3rd year dividend is = 2.60 / (1+0.06) ^3

present value 3rd year dividend is = $2.18 ... 3

present value 4th year dividend is = 95.83 / (1+0.06) ^4

present value 4th year dividend is = $75.91 ... 4

present value of stoke combine equation 1 + 2 + 3 + 4

present value of stoke combine equation = 2.05 + 2.18 + 2.30 + 75.91

present value of stoke combine equation is $82.43