Question

Claire invests in a stock that will pay dividends of $3.00 at the end of the first year, $3.10 at the end of the second year, and $3.50 at the end of the third year. She also believes that at the end of the third year she will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 10% is applied?

Answer 1

Year 1 Benefit = $ 3, Year 2 Benefit = $ 3.1, Year 3 Benefit = $ 3.5 and Year 3 Sale Proceeds = $ 33

Discount Rate = 10 %

Total Present Value of all Future Benefits = 3 / (1.1) + 3.1 / (1.1)^(2) + 3.5 / (1.1)^(3) + 33 / (1.1)^(3) = $ 32.71