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16 March, 23:10

Miller Brothers Hardware paid an annual dividend of $0.95 per share last month. Today, the company announced that future dividends will be increasing by 2.6 percent annually. If you require a 13 percent rate of return, how much are you willing to pay to purchase one share of this stock today

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Answers (2)
  1. 16 March, 23:51
    0
    9.37

    Explanation:

    Miller Brothers Hardware

    Annual dividend per share * Increased in Dividend/Required Rate Increase

    0.95*1.026/0.13-0.026

    =0.9747/0.104

    =9.37

    Therefore 9.37 will be paid in order to purchase one share of the stock.
  2. 17 March, 01:27
    0
    The amount to be paid to purchase a share of the stock today is $9.37

    Explanation:

    In this question, we are asked to calculate the amount which is to be paid to purchase a share of a particular stock by a company.

    We employ a mathematical approach to this:

    Mathematically, the amount to pay to purchase a share of the stock today is = D * [ (1+g) / (r-g) ]

    Where D is annual dividend = $0.95

    g = percentage of future dividend increase = 2.6% = 0.026

    r = rate of return = 13% = 0.13

    We input these values in the formula above:

    Amount = 0.95 * [ (1+0.026) / (0.13-0.026) ] = 0.95 * 9.8654 = $9.37
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