You buy a stock for which you expect to receive an annual dividend of $2.10 for...
You buy a stock for which you expect to receive an annual dividend of $2.10 for the ten years that you plan on holding it. After 10 years, you expect to sell the stock for $26.15. What is the present value of a share for this company if you want an 8% return? A) $7.72 B) $15.97 C) $26.20 D) $31.41n
Homework Answers
value of stock = Present value of dividends + Horizontal value
Present value of annuity= payment per period * [1-(1+i)^-n]/i
i = interest rate per period
n = number of periods
=>
Value of stock = 2.1 * [1-(1+0.08)^-10]/0.08 + 26.15/1.08^10
= 26.20
choose C)
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