Question

You expect a share of EconNews.Com to sell for $65 a year from now. If you are willing to pay $65.74 for one share of the stock today, and you require a return of 8%, what dividend payment must you expect to receive from the stock?

Answer 1

Answer:

dividend payment = $6

Explanation:

given data

sell = $65

pay = $65.74

require a return =  8%

solution

we will use here present value formula that is express as

current stock price ( present value ) = $\frac{future\ value}{1 + rate}$  ........................1

$65.74 = $\frac{65+d}{1+0.08}$

here d is dividend

solve it we get

d = $6.00

so dividend payment = $6

Answer 2

The dividend payment must I expect to receive from the stock is $6.

The formula for determining the dividend payment expected is:

dividend payment = (amount you are willing to buy the stock x (1 + required rate of return)) - expected selling price

($65.74 x 1.08) - $65

= 70.9992 - $65

= $6

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