Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

CFA Events Calendar

View full calendar

CFA Events Calendar

View full calendar

This Month's Leaders

Recommended Discussions

See how our partners can help you ace your CFA exams.

Question of the Week - Equity

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited September 2015 in Level 1 Questions
A stock priced at £35.73 is projected to pay dividends of £1.50, £2.00, and £2.50 at the end of the next three years. At the time of the third dividend, the stock is expected to be worth £36.23. If the required rate of return for this stock is 10%, the intrinsic value of the stock is closest to:

Question of the Week - Equity 16 votes

£32
87%
ZeeartyeaselAdaptPreprsparksStuj79YannickTtcfaJacQuiMsridharcwkevtivRichie321TheClawclangerhscarebaer 14 votes
£34
6%
ArsenalFan 1 vote
£36
6%
jennahomes 1 vote

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    £32

    The intrinsic value of the stock is equal to the present value of its cash flows.

    Year 1 CF: £1.50 dividend

    Year 2 CF: £2.00 dividend

    Year 3 CF: £2.50 dividend + £36.23 terminal value (£38.73 total)


    The present value of these payments at 10% is:

    PV = 1.50 / 1.1 + 2.00 / 1.1^2 + 38.73 / 1.1^3 = 32.11

Sign In or Register to comment.