Question

The value of common stock today depends on:

		The expected future dividends, capital gains and the required rate of return.
		None of these.
		The expected future dividends and the capital gains.
		The expected future holding period and the discount rate.
		The expected future holding period and capital gains.

Answer 1

The value of common stock depends on the the expected future dividend, capital gain and required rate of return.

Formula for intrinsic value is as follows:

Value of common stock= Expected dividend/(required return-growth)

It means that the value of common stock has a relationship with the expected dividend, required return etc. It also depends on the capital gain also.

So correct answer is the expected future dividend, capital gain and the required rate of return.