The analysts predict that the price of corporation's XYZ stock one year from now will be $120. XYZ announced that is not going to pay dividends next year. You decide that you would be satisfied to earn a 12 percent on the investment on this stock, thus, this stock is worth ________ for you now.
A) $100.20
B) $108.80
C) $107.14
D) $132.00

Question

Quizplus · Accepted Answer

To find the current worth of the stock for you, given the desired return of 12 percent and no dividends, you would use the formula for the present value of a future sum: Present Value = Future Value / (1 + rate)^n. Here, Future Value = $120, rate = 12% or 0.12, and n = 1 year. So, Present Value = $120 / (1 + 0.12)^1 = $120 / 1.12 = $107.14.

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