You buy a stock for which you expect to receive an annual dividend of $2.10 for the fifteen years that you plan on holding it.After 15 years,you expect to sell the stock for $32.25.What is the present value of a share for this company if you want a 10% return?
A)$7.72
B)$15.97
C)$23.69
D)$31.41

Question

Quizplus · Accepted Answer

To calculate the present value of a stock, we need to use the formula PV = (dividend/interest rate) x (1 - 1/(1+interest rate)^n) + (selling price)/(1+interest rate)^n, where PV is the present value, dividend is the annual dividend, interest rate is the required rate of return, n is the number of years, and selling price is the expected selling price at the end of the holding period. Plugging in the given values, we get PV = (2.10/0.10) x (1 - 1/(1.10)^15) + (32.25)/(1.10)^15 = $23.69. Therefore, the best choice is C.

You Buy a Stock for Which You Expect to Receive