You are considering acquiring a common stock that you would like to hold for one year. You expect to receive both $2.50 in dividends and $28 from the sale of the stock at the end of the year. The maximum price you would pay for the stock today is _____ if you wanted to earn a 15% return.
A) $23.91
B) $24.11
C) $26.52
D) $27.50
E) None of the options are correct.

Question

Quizplus · Accepted Answer

To find the maximum price you would pay today, calculate the present value of the expected cash flows ($2.50 dividend + $28 sale price) discounted at the desired return rate of 15%. The calculation is: ($2.50 + $28) / (1 + 0.15) = $26.52.

You Are Considering Acquiring a Common Stock That You Would