Purchase Solution

Do Capital Gains equal the present value of future dividends

Not what you're looking for?

Ask Custom Question

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."

Purchase this Solution
Solution Summary

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

Solution Preview

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 ...

Purchase this Solution
Free BrainMass Quizzes
Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Income Streams

In our ever changing world, developing secondary income streams is becoming more important. This quiz provides a brief overview of income sources.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

View More Free Quizzes
Related BrainMass Solutions

  • Stock Valuation and Future Dividends Response

    However, I think it is important to note that the stock price does equal the present value of future dividends.

  • Future and present value of a sum of money

    This discusses the future and present value of a sum of money

  • Finance inquiries

    Therefore, stock dividend yield must be equal to 7%. E. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate. Incorrect.

  • Shares Given Prospective Dividend Amounts

    At the end of year five you sell you stock for $45.78. Your dividends are taxed at 28% and your capital gains are taxed at 15%. You are expecting to earn 6% per year on your investment. How many shares (K) of stock do you own?

  • Discuss Factors Influencing a Dividend Policy

    There are also four effects that influence dividend policy such as: • Stockholders' desire for current future income • The perceived riskiness of dividends versus capital gains • The tax advantage of capital gains over dividends • The information

  • Capital Budgeting

    The process of valuing an investment by determining the net present value of its future cash flows is called (the): Constant dividend growth model Discount cash flow valuation Expected earnings model Capital Asset

  • Finance: NPV, Present value, YTM and Bond Evaluation

    Present and Future Values. The present value of the following cash flow stream is $6,550 when discounted at 10 percent annually. What is the value of the missing cash flow? Year Cash Flow 1 $1,700 2 ?

  • Stock return/current price

    The dividend yield is greater than the capital gains yield. Dividend yield is 0.75/buy price and so would be less than capital gains yield. This is not correct 2. Current price is the present value of all dividends.

  • Return on stocks

    In the table below, indicate which stock has the highest value for each of these metrics. Please see the attached file: "1.

View More Related Solutions