To calculate the maximum price you would be willing to pay for the stock now, you need to find the present value of the expected selling price and dividends. Using the present value formula, the most you would be willing to pay for the stock now is $30.80.
To calculate the maximum price you would be willing to pay for the stock now, you need to find the present value of the expected selling price and dividends.
First, let's calculate the present value of the expected selling price of $32.00 at the end of one year. We can use the formula for present value:
PV = FV / (1 + r)ⁿ
Where PV is the present value, FV is the future value, r is the required return, and n is the number of years.
Using this formula, the present value of $32.00 at a required return of 12% for one year is:
PV = $32.00 / (1 + 0.12)¹ = $28.57
Next, let's calculate the present value of the expected dividend of $2.50 at the end of one year. Using the same formula, the present value of $2.50 at a required return of 12% for one year is:
PV = $2.50 / (1 + 0.12)¹ = $2.23
To calculate the maximum price you would be willing to pay for the stock now, you need to add the present values of the expected selling price and dividends:
Maximum price = Present value of selling price + Present value of dividend = $28.57 + $2.23 = $30.80
Therefore, the most you would be willing to pay for the stock now is $30.80.