Question

You are planning to buy Apple stock. and you expect it to pay a dividend of...

You are planning to buy Apple stock. and you expect it to pay a dividend of $3 in 1 year, $4.25 in 2 years, and $6.00 in 3 years. You expect to sell the stock for $100 in 3 years. If your required return for purchasing the stock is 12 percent, how much would you pay for the stock today?

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Abdul-Rahim Taysir

Business   Accounting   
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Answer #1

Maximum amount that one will pay for a stock will be the present value of inflows to be received from that stock during its life.

Therefore, Computation of the present value of inflows will be as follows:

So the maximum one will pay for the apple stock will be $81.71.

*Please note that there can be a difference in cents which depends on the no of decimals taken of PV Factor.

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