Question

If you expect a stock be priced at $80 in one year and pay a dividend of $1.85, what is the most you would be willing to pay for the stock today if you require a return of 13%?

Answer 1

Willing to pay for the stock today is  $72.43.

Given values, Dividend = $1.85

                      Price = $80

                      return = 0.13

Formula, Current Price = (Dividend + Price ) / (1 + return )

                                     = (1.85 + 80) / (1+ 0.13)

                                     = $72.43

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