Question

Assume that you plan to buy a share of EMA stock today and to hold it for 3 years. You expect to receive a dividend of $3.00 at the end of Year 1, $3.50 at the end of Year 2, and a dividend of $4.0 at the end of Year 3. In addition, you expect to sell the stock for $75 at the end of Year 3.

If your expected rate of return is 10%, how much should you be willing to pay for this stock today?

Answer 1

$67.5

Explanation:

Expected rate of return = 10/100 x $75 = $7.5

I am willing to pay $75 - $7.5 = $67.5