Final answer:
The maximum price to pay now for Technology Inc.'s stock, based on the expectation of a $1 dividend and a $75 sale price in one year, and requiring a 6% rate of return, is approximately $72 when rounded to the nearest dollar.
Step-by-step explanation:
Calculating the Present Value of Technology Inc.'s Stock
To determine the maximum price one should be willing to pay for Technology Inc.'s stock based on the given dividend and sale expectations, one needs to calculate the present value (PV) of the future cash flows (dividend plus sale price), adjusted for the required rate of return. The required rate of return consists of the risk-free rate (government bond interest rate) plus the risk premium demanded for holding the stock. In this case, the required rate of return is 4% (risk-free rate) + 2% (risk premium) = 6%.
The future cash flow from owning the stock for one year is the expected dividend of $1 plus the expected sale price of $75. To find the present value of this future cash flow, one should use the formula: PV = Future Cash Flow / (1 + required rate of return).
Therefore, the maximum price one should be willing to pay now for the stock is calculated as follows: PV = ($1 + $75) / (1 + 0.06) = $76 / 1.06 ≈ $71.70. Rounded to the nearest dollar, the maximum price to pay now for the stock would be $72.