What would you pay for a stock whose price you estimate will be $50 in 10 years and you wish to earn a return on the investment of 9% per year? Ignore brokerage commissions and tax implications and assume the stock pays no dividends during the holding period.
A) $45
B) $41
C) $21.10
D) $15

Question

Quizplus · Accepted Answer

To find out what you would pay for a stock to achieve a 9% annual return over 10 years, you would use the formula for the present value of a future sum of money, which is $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value ($50), r is the annual interest rate (9% or 0.09), and n is the number of years (10). Plugging in these values gives $PV = \frac{50}{(1 + 0.09)^{10}} \approx 21.10$.

What Would You Pay for a Stock Whose Price You