This Question 1 pt 20 of 30 21 complete his Test 30 pts poss

This Question: 1 pt 20 of 30 (21 complete) his Test: 30 pts possible Question Help You are contemplating the purchase of a stock you will hold for 2 years. You will receive S0.89 per year in dividends, and then you expect to sell it for S20. If the required return is 11%, what is the most you would pay for the stock? The most you would pay for the stock is s(Round to the nearest cent)

Solution

Answer to Question 1:

Annual Dividend = $0.89
Selling Price = $20
Required Return = 11%
Period = 2 years

Current Price = $0.89/1.11 + $0.89/1.11^2 + $20/1.11^2
Current Price = $17.76