A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments? A) $30.24B) $26.30C) $26.09D) $27.74

B) $26.30

Explanation:

To determine an investor's valuation of the stock we must calculate the present value of next year's dividend and selling price:

present value = [dividend / (1 + rate) ] + [selling price / (1 + rate) ]

present value = [$0.24 / (1 + 15%) ] + [$30 / (1 + 15%) ] = $0.21 + $26.09 = $26.30