Suppose a share has the flat fundamental value of $3.60. The share trades for 15 periods. The market interest rate is 10%. This implies that the per period expected dividend on the share must be:
A) $0.24.
B) $3.60.
C) $0.36.
D) $2.40.

Question

Quizplus · Accepted Answer

The fundamental value of a share is the present value of its expected future dividends. Given a flat fundamental value of $3.60 and a market interest rate of 10%, the expected dividend per period must be such that the present value of these dividends equals $3.60. The expected dividend per period is $0.36, as $0.36 / 0.10 = $3.60.

Suppose a Share Has the Flat Fundamental Value of $3