Which of the following values is closest to the amount that should be paid for a share that will pay a dividend of €10 in one year and €11 in two years? The share will be sold in 2 years for an estimated price of €120.The appropriate discount rate is 9%.
A)€114.60
B)€119.43
C)€124.20
D)€129.50
E)€138.75

Question

Quizplus · Accepted Answer

To calculate the price of the share, we need to find the present value of all future cash flows. Using the dividend discount model and a discount rate of 9%, we get:

PV = (10 / 1.09) + (11 / 1.09^2) + (120 / 1.09^2)
PV = 9.17 + 9.92 + 100.57
PV = 119.43

Therefore, the closest value is €119.43, which is answer choice B.

Which of the Following Values Is Closest to the Amount