ABC limited expected to pay 18 dollars every year on a share of its stock. what is the present value of a share if money work is 9% compounded annually?

Answer 1

To find the present value of a share, we can use the formula for the present value of an ordinary annuity:

Present Value = Payment * (1 - (1 + r)^(-n)) / r

Where:
Payment = $18 (the payment per year)
r = 9% = 0.09 (the interest rate as a decimal)
n = 1 (the number of years)

Plugging in the values, the formula becomes:

Present Value = $18 * (1 - (1 + 0.09)^(-1)) / 0.09

Simplifying:

Present Value = $18 * (1 - (1.09)^(-1)) / 0.09
Present Value = $18 * (1 - 0.9174) / 0.09
Present Value = $18 * 0.0826 / 0.09
Present Value = $1.4828

Therefore, the present value of a share is approximately $1.48.