Question
In: Finance
A stock will start to pay a perpetuity dividend of $2 in two years. The discount...
A stock will start to pay a perpetuity dividend of $2 in two years. The discount rate of the stock is 5%. How much are you willing to pay today?
Solutions
Expert Solution
Value as on year 2 = Annual inflows / Interest rate = $2 / 0.05 = $40
Value of this perpetuity today = Value as on year 2 / (1 + r)^1
Value of this perpetuity today = $40 / (1 + 0.05)^1
Value of this perpetuity today = $38.10
jeff jeffy answered 2 years agoRelated Solutions
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