Question

Kidd Inc. stock will pay a dividend in one year of $1 and a dividend in two years of $1.50. You plan to sell the stock in two years (just after you receive the dividend) for $27.65. If the market's required return on Kidd Inc. stock is 10%, what is the price today?
could you break this down step by step ?

Answer 1

price today = $25.

the price today will be the present value of future payments to be received

present value factor = 1 /(1+r)^n

here , r=10%=>0.10

n=1,2

year	amount	Present value factor	amount * present value factor
1	$1	1/(1.10)^1 =>0.90909	0.909091
2	1.50	1/(1.10)^2=>0.82645	1.239675
2	27.65	1/(1.10)^2=>0.82645	22.8513425
		price today	$25.00