You are contemplating the purchase of a stock you will hold for 2 years. You will receive $ 0.87...

Question:

You are contemplating the purchase of a stock you will hold for 2 years. You will receive $ 0.87 per year in dividends, and then you expect to sell it for $ 26. If the required return is 12 % what is the most you would pay for the stock?

Present Value:

Present value is the dollar value of a future payment as of today. The present value is usually smaller than the face value of the future payment, and the difference is attributed to the time value of money, which captures the opportunity cost of money in terms of lost potential returns from investment.

Answer and Explanation:

The most you would pay today is $22.20.

The most you would pay for a stock is the present value of payments that you expect to receive from owning...

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How to Calculate the Present Value of an Annuity

from Business 110: Business Math

Chapter 8 / Lesson 3
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