The dividend on a common stock of a certain company will be P60 on the first year, P85 on the second year, and P120 on the third year

Accounting Nov 22, 2020

The dividend on a common stock of a certain company will be P60 on the first year, P85 on the second year, and P120 on the third year. You can sell the stock after you received the dividend of P200 at the end of three years. If you require a 9% return on your investment, how much will you be willing to pay for a share of this stock today?

Expert Solution

Willing to pay today for stock is;

[60/(1.09^1)] + [85/(1.09^2)] + [120/(1.09^3)] + [200/(1.09^3)]

= (60/1.09) + (85/1.1881) + (120/1.2950) + (200/1.2950)

= P373.687

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