A firm is expected to pay a dividend of $2.35 next year and $2.65 the following year. Financial analysts believe the stock will be at their price target of $105 in two years. Compute the value of this stock with a required return of 11.3 percent.

89.01

Explanation:

The computation of value of required return is shown below:-

Price 1 = (Dividend 1 ÷ (1 + Interest)) + ((Dividend 2 + Price 2) ÷ (1 + interest)^2)

=  (2.35 ÷ (1 + 0.113)) + ((2.65 + 105) ÷  (1 + 0.113)^2)

= (2.35 ÷ 1.113) + (107.65  ÷ 1.238769 )

= 2.111410602  + 86.90078618

= 89.01219679

= 89.01

Therefore for computing the value of required return we simply applied the above formula.

Insurance company shows bias to the insured as it does not compensate all types of losses.

It consumes more time to provide financial compensation because lengthy legal formalities.

It does not provide enough financial facilities like the bank does.

Explanation: