The analysts predict that the price of corporation's XYZ stock one year from now will be $20. XYZ announced that is not going to pay dividends next year. You decide that you would be satisfied to earn a 10 percent on the investment on this stock, thus, this stock is worth ________ for you now.
A) $18.00
B) $18.18
C) $21.10
D) $21.00

Question

Quizplus · Accepted Answer

To calculate the current value of the stock, use the formula: P0 = P1 / (1 + r), where P0 is the current value, P1 is the future value, and r is the required rate of return. Plugging in the values, we get: P0 = 20 / (1 + 0.10) = $18.18. Therefore, choice B is the best answer.

The Analysts Predict That the Price of Corporation's XYZ Stock