You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $62.73 for one share of the stock today, and you expect a dividend payment of $4, what rate of return do you require?

Question

Quizplus · Accepted Answer

To solve for your required rate of return, use the present value equation: PV (the current stock price)= FV (the future value)/ (1 + i). Here, $62.73 = ($65 + $4)/ (1 + i), so 1 + i = 1.10, and i = 0.10, or 10 percent.

You Expect a Share of EconNews