Question

What is the current price for ABC inc. common stock if the stock is expected to pay a dividend of $1.00 in one year, $1.50 in 2 years and $1.70 in three years, assuming you will sell the stock in three years for $90.39 (just after you received the 3rd dividend) and the required rate of return is 8%

Answer 1

Given information

1) rate of return = 8%

2) Dividends received

at end of year 1 = $ 1.00

at end of year 2 = $1.50

at end of year 3= $1.70

selling price of stock at end of third year=$90.39

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