- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 41. Equity Valuation: Concepts and Basic Tools
- Subject 3. Present Value Models: The Dividend Discount Model
CFA Practice Question
Estimate the value of a common stock with a one-year holding period, an expected dividend of $3.00 per share, an expected selling price of $35 per share at the end of one year, and a required return of 10%.
B. $35.25
C. $34.55
A. $38.00
B. $35.25
C. $34.55
Correct Answer: C
The price can be estimated as: $(35 + 3) / (1.1) = $34.55.
User Contributed Comments 10
| User | Comment |
|---|---|
| Bibhu | In BA II plus, 1. CF + Clear Work 2. CF0=0, C01=35+3=38,F01=1, I= 10, CPT NPV. Though for the above mentioned example, the answer seem to be easier one, but in general CF methodology through BA II Plus is better approach. Don't forget to clear work. |
| rfvo | Thanks, Bibhu |
| Natalia82 | Or with 1-year holding period... In BA II Plus 1. FV=3+35=38 2. I/Y=10 3. N=1 CPT PV |
| ljamieson | Just 38/1.1 would suffice |
| johntan1979 | Agree with ljamieson... 7 buttons to press vs more than 14 buttons. You don't need the CF menu for a one year holding. |
| davidmort | how do you do this on a HP 12c. |
| Shaan23 | If you guys cant do this without a calculator then you dont understand the logic. There's no need for a calculator. 38/1.1 |
| robertucla | ^saves time and less room for error. |
| Rachelle3 | 38 divided by ( 1+ rate) ok! |
| Rachelle3 | you can do it to the power of 1 but do you really need to? lol |