Question

Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today?

Answer 1

Today's price = = $30

Step-by-step explanation:

The question requires the most price one is willing to pay today for the following

a) a stock that will sell for $30 in 1 year

b) Payout a dividend of $3

3) with a return rate on equity of 10%

To calculate the price for today or the present value,

we add the dividend expected to the selling price as follows

$3 + $30 = $33

The rate = 10% and the period = 1 Year

Present value = Future Value / (1+r)∧n

= 33/ 1.1

= $30