What price would an individual be willing to pay today for a stock that is expected to sell for $100 two years from now and which pays an annual dividend that is $6.00? Assume the individual has a discount rate of 8% (0.08).
What will be an ideal response?
We can use the formula from the chapter to determine the price of the stock today:
Ptoday = 
+ 
+ 
Based on the information provided in the question; the Dnext year and Din two years will = $6.00. The Pin two years will = $100.00 and i = (0.08) Ptoday will be $96.43.
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What will be an ideal response?
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