5. Respond briefly to the following statement: You say stock prices eq
QUESTION
5. Respond briefly to the following statement: You say stock prices equals the present value of future dividends? That is crazy! All the investors I know are looking for capital gains6. Company A is expected to pay an end of year dividend of $5 a share. After the dividend its stock is
5. Respond briefly to the following statement: You say stock prices equals the present value of future dividends? That is crazy! All the investors I know are looking for capital gains Capital gains are a profit that results from investment. Even if investors are looking for capital gains, the future stock price which is affected but not determined by a businesss actual profits is determined by the present value of future dividends. Both statements are true and
o not contradict each other. 6. Company A is expected to pay an end of year dividend of $5 a share. After the dividend its stock is expected to sell at $110. If the market capitalization rate is 8%, what is the current stock price? A = dividend $5/share; sell at $110 MCR = 0.08 (110-5)(1 0.08) = 105 x .92 = $96.6
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