Answer
A. Current price of the stock is $96.43
B. Yes, it is recommended to buy the stock because the current price of the stock is $260 but the same stock is available at $200.
Explanation
A.
Current Price of the stock is computed using the excel equation given below:
Current price = PV (RATE, NPER, PMT, FV)
= PV (8%, 2, $6, $100)
= $96.43
B.
Current price is computed using the equation given below:
Current price = {Dividend * (1 + growth rate)} / {Required rate - Growth rate}
= {$10 * (1 + 4%)} / {8% - 4%}
= $10.40 / 4%
= $260.
Yes, it is recommended to buy the stock because the current price of the stock is $260 but the same stock is available at $200. Hence, the investor earn profit in this deal.
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