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Do Capital Gains equal the present value of future dividends

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Respond to the following:

"You say stock price equals the present value of future dividends? That's crazy! All the investors I know are looking for capital gains."

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Solution Summary

The 413 word solution discusses the concepts in detail and makes a determination at the end.

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The first question is why do investors buy stocks? Of course, they buy because they suspect or hope that the value of the stock of a company will increase. An investor always has an expectation for profits, and given a choice between dividends and increases in market price, many investors would opt for increased value over dividends.

Next question is what types of events cause the market value of a stock to increase? There are a number of reasons for stock prices to go up:

1. Rumors in the market such as new CEO, new products, M&A activity
2. Special events such as new contracts, new ...

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