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    Price of stock

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    Assume that you plan to buy a share of XYZ stock today and to hold it for two years. Your expectations are that you will not receive at the end of year 1, but will receive a dividend of $9.25 at the end of year 2. In addition, you expect to sell the stock for $150 at the end of year 2. If your expected rate of return is 16 percent, how much should you be willing to pay for this stock today?

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    Solution Preview

    Whatever you are willing to pay for the stock would be the present value of the future cash flows. This ...

    Solution Summary

    The solution explains how to calculate the current price of a stock given the dividends and the expected price at the time of sale in the future.