If the annual earnings for a company are $10, the expected future price of its stock is $100, and the required rate of return is 8%, then the current price of the stock should be

Question

Quizplus · Accepted Answer

The current price of the stock can be calculated using the dividend discount model (DDM) for a stock with no growth, which is P = D / (r - g), where P is the price, D is the dividend (or earnings, in this case, if we assume all earnings are paid out as dividends), r is the required rate of return, and g is the growth rate. Since no growth rate is given, we can simplify this to P = D / r. However, the information provided does not directly fit this model because it mentions an expected future price rather than a dividend. The correct calculation should consider the expected future price and the required rate of return, but the given options do not match the expected outcome of such a calculation, leading to the conclusion that the correct answer is not provided among the options.

If the Annual Earnings for a Company Are $10, the Expected