CFA Practice Question

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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%.

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
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.

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
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