Question

. In one year, Hitech Microdevices will pay a common stock dividend of $4.35. You predict that you will be able to sell your Hitech stock for $57 per share after 1 year. If you require a rate of return of 16 percent on Hitech stock, how much would you be willing to pay now for a share of the stock?

Answer 1

Answer:

$52.89

Explanation:

To calculate the present value of a stock, we use the formula,

D + E

(1 + R)^Y

where, D = expected dividend, $4.35

           E = expected stock price, $57

           R = real rate of return, 16% or 0.16

           Y = Number of years, 1

we have,

$4.35 + $57

(1 + 0,16) ^1     = $61.35 ÷ 1.16

                      = $52.887 ≈ $52.89.

The present value of the stock is  $52.89.

Cheers.