CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

Sam's Company expects to pay a dividend of $6 per share at the end of year one, $9 per share at the end of year two and then be sold for $136 per share. If the required rate of return on the stock is 20%, what is the current value of the stock?

A. $100.10
B. $105.69
C. $110.00
Correct Answer: B

User Contributed Comments 14

User Comment
cgeek 136 + 6 * (1 + 20%) + 9 = x * (1 + 20%) * (1 + 20%) => x = 105.69
jamiejamie using the formula from the text: d1/(1+k) + d2/(1+k)^2 + sp2/(1+k)^2 =6/1.2 + 9/1.2^2 + 136/1.2^2 =105.69
aroman21 Forget doing the math by hand, just do a NPV of the future cash flows discounted back at 20%
Winner what are the steps using the Texax Instruments BA II to calculate the NPV of the future Cash flows?
cfahanoi CF function is applied

CF0=0
C01=6, F01=1
C02= (9+136) , F02=1
I=20
=> NPV = 105.69
missmalik D_1= $6/SHARE
D_2=$9/SHARE
Value of the Stock= $6/1.20+ 9/((1,20))^2 +136/((1,20))^2
=5+ 9/1.44+136/1.44
= $5+6.25+94.44
=105.69
rfvo Nice 1, CfaHanoi!!
Kami02 thanks cfahanoi
Tony1234 Yeah NPV is the way to go.
2014 Not confidence in cashflow as answer.

Just try same method in book for any question. You wont get rite answer.
Dividend is divided by r-g =d/r-g
and then you go to find pv as per text book. Here you have just directly
similar questions i mean only few questions in textbook u get answer thru this method not all
davidmort HP 12C?
robbiecow g CF0 = 0
g CFj = 6
g CFj = 145
i = 20
f NPV = 105.69
Kevdharr $6.00/1.20 = $5
$9.00/1.20^2 = $6.25
$136.00/1.20^2 = $94.44

$5.00 + $6.25 + $94.44 = $105.69

Easy as ABC, Baby 123
Rachelle3 thanks Kevdharr much better this way!
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