Question

A while ago, Nicole bought shares of stock in a high-tech firm. At that time, the selling price was $60 per share. According to today's newspaper, a share is currently worth 30% more. What is the current value of one share?

Answer 1

Explanation:

1. Dividends

2. Capital gains

-The discounted present value of the sum of next period's dividend plus next period's stock price

-The discounted present value of all future dividends

P0 = [(Div1)/(1+R)] + [P1/(1+R)]

where Div 1 = expected dividend paid at year's end

P1 = expected price at year's end

R = discount rate

Answer 2

$78

Explanation:

A share is worth 30% more, so multiply 30% by 60 to get 30% of 60, which is 18. Then, add 18 to 60 because the share is 30% more, and you get 78.