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vazorg [7]
3 years ago
8

Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not recei

ve a dividend at the end of Year 1, but you will receive a dividend of $9.25 at the end of Year 2. In addition, you expect to sell the stock for $150 at the end of Year 2. If your expected rate of return is 16 percent, how much should you be willing to pay for this stock today?
Business
1 answer:
Stolb23 [73]3 years ago
4 0

Answer:

Price to be paid today = $118.35

Explanation:

<em>The price of a share can be calculated using the dividend valuation model  </em>

<em>According to this model the value of share is equal to the sum of the present values of its future cash dividends discounted at the required rate of return.  </em>

The model can applied as follows:

PV of dividend = D×(1+r) ^(-n)

D- dividend , r - required rate , n- number of year

D- 9.25,  r - 16%, n = 2

PV of dividend = 9.25 × (1.16)^(-2)= 6.9

PV of disposal value

PV of dividend = F ×  (1+r) ^(-n)

D- disposal value  , r - required rate , n- number of year

PV of disposal value  = 150 × (1.16)^(-2)= 111.47

Price to be paid today

Total present value  =  6.9  +  111.47  = 118.35

Price to be paid today = $118.35

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2 years ago
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It should be noted that when an individual claims 0 on their tax, then such a person is having the largest amount that will be withheld from their paycheck.

<h3>What is a tax? </h3>

Your information is incomplete as you didn't give enough information. Therefore, an overview of tax will be given. A tax is a compulsory levy that's paid to the government.

In a situation when an individual claims 0 on their tax, then such a person is having the largest amount that will be withheld from their paycheck for federal taxes.

When the goal of the person is to receive a larger tax refund, then it's best that the person claims 0.

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2 years ago
Tiffany has $5000 of savings in her bank account. What would be different if she had that $5000 invented in stocks instead?
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