The value of common stock today depends on:
A) the expected future holding period and the discount rate.
B) the expected future dividends and the capital gains.
C) the expected future dividends, capital gains and the discount rate.
D) the expected future holding period and capital gains.
E) None of these.

Question

Quizplus · Accepted Answer

The value of common stock today depends on the expected future dividends, capital gains and the discount rate. The expected future dividends represent the income that the investor receives from the stock. The capital gains represent the expected increase in the stock price over time. The discount rate represents the required rate of return for the investor. Therefore, the value of the stock is calculated using the formula: Value = (Expected future dividends + Expected future price) / Discount rate.

The Value of Common Stock Today Depends On