Assume That You Plan to Buy a Share of XYZ

question 17

Multiple Choice

Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not receive a dividend at the end of Year 1, but you will receive a dividend of $9.25 at the end of Year 2. In addition, you expect to sell the stock for $150 at the end of Year 2. If your expected rate of return is 16 percent, how much should you be willing to pay for this stock today?

• A) $164.19
• B) $ 75.29
• C) $107.53
• D) $118.35
• E) $131.74

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Definitions:

Basis of Sales

The underlying foundation or principle for recognizing revenue from sales transactions in accounting records.

Departmental Accounting System

This system allows for accounting and financial reporting to be done separately by departments within an organization, facilitating more specific financial oversight.

Cost Center

A department or function within an organization where its costs are accumulated, but it does not directly generate revenue.

Profit Center

A business unit or department within an organization that is treated as a separate entity for the purpose of calculating its profitability.