Question

how much would you pay for a share of stock today if you expect it will pay a dividend of $2.50 each year and will sell for $58 two years from now? assume your required rate of return on this stock is 13 percent. question 9 options: $55.75 $60.50 $49.59 $49.88

Answer 1

To calculate the price of a share of stock today, we use the present value of the future dividend and selling price. The price of the stock today is approximately $49.38.

Step-by-step explanation:

To calculate the price of a share of stock today, we need to consider the present value of the future dividend and future selling price.

We can use the formula:

Price of Stock Today = Dividend / (1 + Required Rate of Return) + Selling Price / (1 + Required Rate of Return)2

Plugging in the values:
Dividend = $2.50
Selling Price = $58
Required Rate of Return = 0.13

Price of Stock Today = $2.50 / (1 + 0.13) + $58 / (1 + 0.13)2

Price of Stock Today ≈ $2.21 + $47.17 ≈ $49.38

Therefore, the answer is $49.38.