Question

A stock is expected to pay the following dividends per share over the next four​ years, respectively: ​ $0.00, $2.30,​ 2.60, and​ $2.90. If you expect to be able to sell the stock for​ $95.83 in four years and your required rate of return is​ 6%, what is the most that you should be willing to pay for a share of this stock​ today?

Answer 1

present value of stoke combine equation is $82.43

Step-by-step explanation:

Given data

no of period = 4

discount rate = 6% = 0.06

dividends = $0.00, $2.30,​ 2.60, and​ $2.90

to find out

current stoke price

solution

we know dividend is 0 for st year so present value for 1st year will be 0 .....1

now we calculate

present value 2nd year dividend is = 2.30 / (1+0.06)^2

present value 2nd year dividend is = $2.05 ............2

present value 3rd year dividend is = 2.60 / (1+0.06)^3

present value 3rd year dividend is = $2.18 ..............3

present value 4th year dividend is = 95.83 / (1+0.06)^4

present value 4th year dividend is = $75.91 ..............4

present value of stoke combine equation 1 + 2 + 3 + 4

present value of stoke combine equation = 2.05 + 2.18 + 2.30 + 75.91

present value of stoke combine equation is $82.43