The present value of the cash flows expected to come from owning a share of stock:
A)is the maximum price an investor should be willing to pay for the share.
B)is the minimum price an investor should be willing to pay for the share.
C)is not related to the price that an investor should be willing to pay for the share.
D)All of the above

Question

Quizplus · Accepted Answer

The present value of the cash flows expected from owning a share of stock represents the true value of the stock. As such, an investor should be willing to pay a maximum price equal to the present value of those cash flows, meaning that option A is correct. Option B is incorrect because it suggests that an investor should be willing to pay less than the true value, while option C is incorrect because the present value of cash flows is directly related to the price an investor should pay for the stock.

The Present Value of the Cash Flows Expected to Come