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Finance Homework Question!?
You are evaluating the purchase of Holdings, Inc common stock that just paid a dividend of $1.80. You plan to hold the stock for three years and then sell it. You expect the price of the company’s stock to rise to $51.50 at the end of your three year holding period. You estimate that a required rate of return of 17.5% will be adequate compensation for this investment. Calculate the present value of the expected future stock price. Round to the nearest $.25.
Thank you so much!
1 Answer
- Anonymous10 years agoFavorite Answer
You can answer this question with either a financial calculator or Microsoft Excel.
FINANCIAL CALCULATOR:
[N][I/Y][PV][PMT][FV]
Where:
N = 3
I/Y = 17.5
PV = 0
PMT = 1.80
FV = 51.50
This gives you an output of $35.69, or $35.75 when rounded to the nearest $.25
EXCEL:
Use the PV function.
=PV(rate,nper,pmt,fv,type)
=PV(17.5%, 3, 1.80, 51.50, 0)
=35.69, or 35.75 when rounded