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Calculating present value
If John Doe invests in a stock that will pay dividends of $2.00 at the end of the first year; $2.20 at the end of the second year; and $2.40 at the end of the third year. He also thinks that at the end of the third year he will be able to sell the stock for $33. What is the present value of all future benefits if a discount rate of 11% is applied?
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This is clearly a howework problem. Rather than asking us to do your homework for you, please post what you think the answer is and how you got it, and then someone will be glad to check it for you. But to get you started - to calculate the PV of a payment you expect to receive in the future you use: FV = PV*(1+i)^n If you expect a $2 payment in 1 year, then the future value (FV) = $2, I = .11, and n= 1 year. So now you can find its present value (PV). Do a similar calculation for each of the dividend payments plus the final sale of stock, and add them up. Can you take it from here? |
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