Explanation

This is a two-period dividend discount model calculation:

$P_0 = \frac{D_1}{(1 + r)^1} + \frac{D_2 + P_2}{(1 + r)^2}$

Where:

• D_1 = \`2.00` $
• D_2 = \`2.50` $
• P_2 = \`100.00` $
• $r = 10\% = 0.10$

$P_0 = \frac{2.00}{(1.10)^1} + \frac{2.50 + 100.00}{(1.10)^2}$ $P_0 = \frac{2.00}{1.10} + \frac{102.50}{1.21}$ P_0 = 1.8182 + 84.7107 = \`$86.53`

Wait, let me recalculate more precisely:

$\frac{2.00}{1.10} = 1.81818182$ $\frac{102.50}{1.21} = 84.7107438$ P_0 = 1.81818182 + 84.7107438 = 86.52892562 \approx \`$86.53`

Actually, looking at the options, $86.36 is option A and $86.53 is option B. Let me check the calculation again:

$P_0 = \frac{2.00}{1.10} + \frac{2.50}{1.21} + \frac{100.00}{1.21}$ $P_0 = 1.81818182 + 2.06611570 + 82.6446281$ P_0 = 86.52892562 \approx \`$86.53`

This matches option B ($86.53), not option A ($86.36). However, the question says "closest to" and the correct calculation gives $86.53, which is option B.