You expect a share of EconNews.Com to sell for $65 a year from now and to pay a $2 dividend per share in one year. What should you pay (rounded to the nearest dollar)for the stock today if you require an 8 percent return?

Question

Quizplus · Accepted Answer

If you require an 8 percent return, you must discount future payments by that amount. Using the present value equation: PV (current stock price)= FV (future value)/ (1 + i), where PV = ($65 + $2)/1.08 = $62.04.

You Expect a Share of EconNews