If you expect NoDiv Corporation to sell for $75 per share in three years while paying no dividends along the way,and if your required rate of return is 16% per year,how much is the stock worth today?

Question

Quizplus · Accepted Answer

To calculate the current stock price, we need to use the present value formula:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the required rate of return, and n is the number of years.

Substituting the given values, we get:

PV = 75 / (1 + 0.16)^3
PV = 75 / 1.658
PV = 45.22

Therefore, the stock is worth $48.05 today, which is the closest to option B.

If You Expect NoDiv Corporation to Sell for $75 Per