You Are Considering Buying a Share of Stock in Company

question 28

Multiple Choice

You are considering buying a share of stock in Company ABC.At the end of years 1,2,and 3 the stock will pay you a dividend of $10.In addition,at the end of the third year you expect to sell the share of stock for $200.If the interest rate is 5%,how much is the share of ABC stock worth to you today?

• A)$200
• B)$210
• C)$220
• D)$230

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Definitions:

Rights Offering

A method by which companies raise capital, allowing current shareholders to purchase additional shares at a discounted price before the general public.

Market Price

The current listed price for buying or selling a service or asset.

Underwriters' Spread

The difference between the price at which underwriters purchase securities from issuers and the price at which these securities are then sold to the public.

Stock Issue

The process by which a company distributes its shares to investors, either through initial public offerings (IPOs) or secondary offerings, to raise capital.