How much should an investor pay now for a stock expected to sell for $30 one year from now if the stock offers a $2 dividend, dividends are taxed at 40%, capital gains are taxed at 20%, and a 15% after-tax return is expected on the investment?
A) $25.04
B) $26.53
C) $27.09
D)$27.50

Question

Quizplus · Accepted Answer

0.15 = [$2 × (1 - 0.40)]/P₀ + [($30 - P₀)/P₀](1 - 0.20); P₀ = $26.53

How Much Should an Investor Pay Now for a Stock