You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you require a return of 8 percent, what dividend payment must you expect to receive from the stock?

Question

Quizplus · Accepted Answer

If you require an 8 percent return, you must discount the future payment by that amount. Use the present value equation: PV (current stock price)= FV (the future value)/ (1 + i), so $65.74 = ($65 + d)/1.08 = ($65.74 × 1.08)-$65 = d, and d = $6.00 (where d means "dividend").

You Expect a Share of EconNews