How Much Should an Investor Pay Now for a Stock

question 98

Multiple Choice

How much should an investor pay now for a stock expected to sell for $30 one year from now if: the stock offers a $2 dividend, dividends are taxed at 40%, capital gains are taxed at 20%, and a 15% after-tax return is expected on the investment?

• A)$25.04
• B)$26.53
• C)$27.09
• D)$27.50 .15 =

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Definitions:

Predictability

The extent to which future states or conditions of a system can be forecasted based on existing data or patterns.

Level Of Significance

The predetermined threshold of probability at which a statistical result is considered significant.

Causality

The relationship between causes and effects, suggesting that one event (the cause) directly affects another (the effect).

Scatterplot

A type of graph used in statistics to display values for two variables for a set of data.