Part 1How much would you pay for a share of stock paying a dividend (cash payout C) of $44 to be paid in one year, a known selling price in one year (P) of $5050, and expected return (R) of similar assets of 44%? You would pay $[input]enter your response here . (Round your response to the nearest penny.)

Question

Part 1How much would you pay for a share of stock paying a dividend ​(cash payout ​C) of ​$44 to be paid in one​ year, a known selling price in one year ​(​P) of ​$5050​, and expected return ​(R) of similar assets of 44​%? You would pay ​$[input]enter your response here . ​(Round your response to the nearest​ penny.)

BlackTom AI · Accepted Answer

To value the share today, we consider the cash you’ll receive from holding it for one year: the dividend C plus the selling price P. The present value of that combined amount is computed by discounting at the expected return R.

Step 1: Identify the cash inflows in year 1.
- Dividend: C = 44
- Sale price in year 1: P = 50 (note: the problem states a selling price in one year of 50)
- Total cash in year 1 from holding the stock: C + P = 44 + 50 = 94

Step 2: Discount the year-1 cash flow back to present value using the required return R = 44% = 0.44.
- Present value factor: 1 + R = 1.44
- Present value (price you would pay today): PV = (C + P) / (1 + R) = 94 / 1.44

Step 3: Compute the division.
- 94 ÷ 1.44 ≈ 65.2778

Step 4: Round to the nearest cent as requested.
- 65.2778 rounds to 65.28

Conclusion (rounded value): The amount you would pay today for the stock is $65.28.

Quiz:Quiz 2

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