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An analyst forecasts that a company will pay a dividend of $1.50 next year and have a stock price of $73 at the end of the next year. If the required rate of return is 8%, the estimated value of the stock today is closest to: | Chartered Financial Analyst Level 2 Quiz - LeetQuiz

Explanation:

Explanation

This is a one-period dividend discount model calculation:

$P_0 = \frac{D_1 + P_1}{(1 + r)}$

Where:

$D_1 = \`$ 1.50` $ (dividend next year)
$P_1 = \`$ 73.00` $ (expected stock price at end of next year)
$r = 8\% = 0.08$ (required rate of return)

$P_0 = \frac{1.50 + 73.00}{(1 + 0.08)} = \frac{74.50}{1.08} = \`$68.98`$

Therefore, the estimated value of the stock today is $68.98.

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Explanation

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An analyst forecasts that a company will pay a dividend of `$1.50` next year and have a stock price of `$73` at the end of the next year. If the required rate of return is 8%, the estimated value of the stock today is closest to: