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30 July, 00:02

Suppose you plan to hold a stock for one year. You expect that, in one year, it will sell for $30 and pay a dividend of $3 per share. If your required return on equity is 10%, what is the most you should be willing to pay for the share today?

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  1. 30 July, 02:32
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    Today's price = = $30

    Explanation:

    The question requires the most price one is willing to pay today for the following

    a) a stock that will sell for $30 in 1 year

    b) Payout a dividend of $3

    3) with a return rate on equity of 10%

    To calculate the price for today or the present value,

    we add the dividend expected to the selling price as follows

    $3 + $30 = $33

    The rate = 10% and the period = 1 Year

    Present value = Future Value / (1+r) ∧n

    = 33 / 1.1

    = $30
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