You Buy a Stock for Which You Expect to Receive

question 14

Multiple Choice

You buy a stock for which you expect to receive an annual dividend of $2.10 for the fifteen years that you plan on holding it.After 15 years,you expect to sell the stock for $32.25.What is the present value of a share for this company if you want a 10% return?

• A)$7.72
• B)$15.97
• C)$23.69
• D)$31.41

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Definitions:

Term Deposit

A banking term for a fixed-term investment where money is deposited at an agreed interest rate and cannot be withdrawn until the term has expired without incurring a penalty.

Maturity Value

The total amount that will be paid to an investor at the end of a bond's term or upon maturity of an investment.

Interest Components

The different parts that make up the total interest calculation, including the principal amount, interest rate, and time period.

Principal

The original sum of money borrowed in a loan or the initial amount of investment, not including interest or profits.