CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

A company earned $3 a share last year and just paid a dividend of $2 a share. The company's dividends are expected to grow by 8 percent annually for the next two years. An investor with an 11-percent required rate of return expects to sell the stock at $75 two years from now. The maximum amount the investor should be willing to pay for this company's stock (in $) today is closest to ______.
A. 60.68
B. 62.38
C. 64.71
Explanation: V = D1 / (1 + k) + D2 / (1 + k)2 + SP2 / (1 + k)2

The value of the stock: 2($1.08)/1.11 + 2($1.08)2/1.112 + $75/1.112 = $64.71.

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