A firm does not expect to pay dividends in the next four years. beginning five years from today, the firm expects to pay a constant dividend of $4.75 per year forever. investors required rate of return on the firm's stock is 10 percent. what is the price of the stock today?

From the data given above, the investor required rate of return on the firm's stock is 10% and is equal to $4,75 that is expected to be paid each year.

If $4.75 = 10%, then the price of the stock which is 100% will be equal to $4,75 * 10 = $47.50.

Therefore, the current price of the stock is $47.50.

Given:

dividend: 4.75 per year forever

required rate of return: 10%

Since the dividend is always the same, the stock can be viewed as an ordinary perpetuity with a cash flow equal to D every period. The per-share value is thus given by

P₀ = D/R

P₀ = Price today

D = dividend per year

R = required rate of return

P₀ = 4.75 / 0.10 = 47.50

The price of the stock today is $47.50