What is the most an investor would be willing to pay for a stock that will pay $210 next year and nothing before or after?

Question

Quizplus · Accepted Answer

The value of a stock that pays a future amount can be calculated using the present value formula: PV = FV / (1 + r)^n, where PV is the present value (what an investor would be willing to pay now), FV is the future value ($210 in this case), r is the interest rate, and n is the number of periods (1 year in this case). For B, if the interest rate is 5 percent, the calculation is $210 / (1 + 0.05) = $200. For C, if the interest rate is 10 percent, the calculation is $210 / (1 + 0.10) = $190.91. Therefore, both B and C are correct under their respective conditions.

What Is the Most an Investor Would Be Willing to Pay