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A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent
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43 votes
43 votes
A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments? Working out

User Gshaffer
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1 Answer

16 votes
16 votes

Answer:

$26.30

Step-by-step explanation:

Calculation to determine the investor's valuation of this stock

Using this formula

Investor's valuation of the stock = [Dividend / (1 + rate)] + [Selling price / (1 + rate)]

Let plug in the formula

Investor's valuation of the stock = [$0.24 / (1 + 0.15)] + [$30 / (1 + 0.15)]

Investor's valuation of the stock = $0.21 + $26.09

Investor's valuation of the stock = $26.30

Therefore the investor's valuation of this stock will be $26.30

User Demetri
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