What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

Suppose Acap Corporation will pay a dividend of $2.80 per share at the end of this year and a dividend of $3 per share next year. You expect Acap’s stock price to be $52 in two years. Assume that Acap’s equity cost of capital is 10%.

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What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years? (Answer: $48)

Suppose instead you plan to hold the stock for one year. For what price would you expect to be able to sell a share of Acap stock in one year? (Answer: $50)

Given your answer to (b), what price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for one year? How does this price compare to your answer in (a)? (Answer: the same, $48)

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

What price would you be willing to pay for a share of Acap stock today, if you planned to hold the stock for two years?

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