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Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not receive a dividend at the end of Year 1, but you 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.

Question: 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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The solution explains how to calculate the current stock price

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What we would be willing to pay would be the present value of cash flows from the stock discounted ...

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