Which of the following is true of common stock valuation? A required rate of return is...
- Which of the following is true of common stock valuation?
- A required rate of return is used to estimate the stock's present value
- Consideration of risk does not enter into common stock valuation
- The amount of cash flows can be known
- The timing of cash flows can be known
Homework Answers
The formula to calculate the stock's present value is as follows:
Stock's present value = D + E / (1 + R)^Y
Where,
D = Expected Dividend
E = Expected price
R = Required rate of return
Y = No. of years
Therefore, the required rate of return is used to estimate the stock's present value.
Therefore, option a is correct.
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