You own 100 shares of stock that are earning $2 per share per year. According to market analysts, the stock is expected to continue to earn $2 long into the future. Using the annuity rule, and assuming an interest rate of 6.5 percent, it follows that the present value of these 100 shares is:

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The present value of an annuity (in this case, the $2 per share per year indefinitely) can be calculated using the formula PV = PMT / r, where PMT is the payment per period (here, $2 per share per year) and r is the interest rate (here, 6.5% or 0.065). For one share, PV = $2 / 0.065 = $30.7692. For 100 shares, the total present value is 100 * $30.7692 = $3,076.92.

You Own 100 Shares of Stock That Are Earning $2