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svlad2 [7]
2 years ago
15

A stock has an annual dividend of $10.00 and it is expected not to grow. It is believed the stock will sell for $100 one year fr

om now, and an investor has a discount (interest) rate of 6% (0.06). The dividend discount model predicts the stock's current price should be:
A. $94.67
B. $116.00
C. $103.77
D. $106.60
Business
1 answer:
Shkiper50 [21]2 years ago
8 0

Answer: C

Explanation: The present value of a stock is the sum of all future cash flows discounted using a rate.

The future cash flows, in this case, is the proceeds from selling the stock ($100) and the dividend ($10).

We can calculate the current price of the stock using the formula:

($100 + $10) / (1 + 6%) = 103.77

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