How Much Should You Pay for a Share of Stock

question 14

Multiple Choice

How much should you pay for a share of stock that offers a constant growth rate of 10%, requires a 16% rate of return, and is expected to sell for $50 one year from now?

• A)$42.00
• B)$45.00
• C)$45.45
• D)$47.00 Expected return = expected dividend yield
• + expected capital appreciation
• Then:
• )16 = .06 + expected capital appreciation
• )10 = expected capital appreciation
• And
• P 1 = 110% of P o

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