FIN3403 TOP Exam Questions And CORRECT Answers

1. Suppose you're thinking of buying a stock. You expect it to pay a $2 dividend in one year, and you believe you can sell the stock for $14 at that time. If you require a return of 20% on this investment, what's the maximum you would be willing to pay? a. What if you decide to hold the stock for two years? In addition to the dividend in year 1, you expect a dividend of $2.1 in two years and a stock price of $14.7 at the end of year 2. How much would you be willing to pay? b. How about holding the stock for three years? In addition to the dividends at the end of years 1 and 2, you expect to receive a dividend of $2.205 at the end of year 3 and the stock price is expected to be $15.435 at the end of year 3. How much would you be willing to pay?