Welcome to Westonci.ca, the Q&A platform where your questions are met with detailed answers from experienced experts. Join our platform to connect with experts ready to provide accurate answers to your questions in various fields. Discover in-depth answers to your questions from a wide network of professionals on our user-friendly Q&A platform.
Sagot :
Answer:
Price of share today = $23.17
Explanation:
The value of a stock using the dividend valuation model, is the present value of the expected cash inflows discounted at the required rate of return. The required rate of return is the cost of equity.
The cost of equity is 10% in this scenario
The price of the share will be determined as follows:
$
Present value of Dividend in yr 1 = 1.40× 1.1^(-1)= 1.27
Present value of Dividend in yr 2 = 1.50 × 1.1^(-2)=1.24
Present value of share in yr 2 = 25× 1.1^(-2) = 20.66
Present value of total cash inflow 23.17
Price of share today = $23.17
Stocks are considered as a financial instruments that represents a firm's ownership stake. Stocks are tool for investors to grow their money and surpass inflation over time.
The computation of the capital gain for the first year is shown below;
Current value = Future dividend and value × Present value of discounting factor(rate%, time period)
= $1.4 ÷ 1.1 + $1.5 ÷ 1.1^2 + $25 ÷ 1.1^2
= $23.15
Hence, the capital gain for the first year is $23.15
To know more about stock, refer to the link:
https://brainly.com/question/24086308
Thank you for choosing our service. We're dedicated to providing the best answers for all your questions. Visit us again. We appreciate your time. Please revisit us for more reliable answers to any questions you may have. Get the answers you need at Westonci.ca. Stay informed with our latest expert advice.