If a corporation pays annual dividends of $5. If the stock price can be purchased for $40.00 at the end of year 0, what price will the stock be worth at the end of year 4 to earn an 8% return over the 4 years.© SolutionLibrary Inc. solutionlibary.com 9836dcf9d7 https://solutionlibrary.com/economics/finance/stock-prices-7e60
...ed in year 4, say P
The cash flows are
Year 1 - $5
Year 2 - $5
Year 3 - $5
Year 4 - ($5+P) - In year 4 we get the dividend + the sale price
We now discount these cash flows at 8% to get the ...