You are considering buying a share of stock in Company ABC. At the end of years 1, 2, and 3 the stock will pay you a dividend of $10. In addition, at the end of the third year you expect to sell the share of stock for $200. If the interest rate is 5%, how much is the share of ABC stock worth to you today

$200

Explanation:

The computation of the share of the ABC stock worth to you today is shown below:

PV = Annual dividend (P/A, i, n) + Sale value (P/F, i, n)

i denotes the interest rate

n denotes the time period  

= $10 (P/A, 5%, 3) + $200 (P/F, 5%, 3)

= ($10 × 2.7232) + ($200 × 0.8683)

 = $27.23 + $172.76

 = $199.99

= $200

Basically we determine the present value

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%