Question

A stock will pay a dividend of $2 in one year, $3 in two years and $4 in 3 years. If you think it will be worth $100 in 3 years, what is the value of the stock? Your required return is 15%. Enter only numbers and decimals in your response. Round to 2 decimal places.

I did "(2/1.5)+(3/(1.15)^2)+(4/(1.15)^3)+(100/(1.15)^3) which equals $72.43 but it isn't the right answer.

Answer 1

PVIF @ 15% Present value D1 0.870 $ 0.756 $ 0.658$ $ 2.00 1.74 D2 $ 3.00 2.27 D3 $ 2.63 4.00 Share price in 3 years 0.658 $ $100.00 65.75 Current value of the stock $ 72.39

*Please rate thumbs up