You believe NIB shares will pay dividends of $1.00,$1.25,and $1.50 at the end of each of the next 3 years.Immediately after receiving the third dividend,you will sell the shares for $28.50.If the appropriate discount rate is 12%,you should be willing to pay $20.75 each for these shares.

Question

Quizplus · Accepted Answer

The present value of the dividends and the sale price, discounted at 12%, is less than $20.75, so you should not be willing to pay that much.

You Believe NIB Shares Will Pay Dividends of $1