If a stock is expected to pay an annual dividend of $20 forever, what Is the approximate present value of the stock, given that the discount
Rate is 5%?
400
To find the approximate present value of the stock, you can use the formula for the present value of a perpetuity, which is:
PV = Dividend / Discount Rate
In this case, the annual dividend is $20 and the discount rate is 5%. Plugging these values into the formula, we get:
PV = $20 / 0.05
Simplifying the expression, we divide $20 by 0.05, which equals $400.
Therefore, the approximate present value of the stock is $400.