An issue of common stock has an expected dividend to be paid at the end of the year of $5 per share, and has an expected growth rate for the foreseeable future of 5% per year. If investors' required rate of return for this particular security is 12% per year, how much should it be selling for? Round to the nearest cent. Do not include the dollar sign in your answer. (i. e. If your answer were $1.23, then type 1.23 without a $ sign

Question

Mathematics

Payton Huffman

25 August, 05:02

An issue of common stock has an expected dividend to be paid at the end of the year of $5 per share, and has an expected growth rate for the foreseeable future of 5% per year. If investors' required rate of return for this particular security is 12% per year, how much should it be selling for? Round to the nearest cent. Do not include the dollar sign in your answer. (i. e. If your answer were $1.23, then type 1.23 without a $ sign

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Peppy · Answer 1

Step-by-step explanation:

D1 - dividend; Return-12%; Growth rate - 5%

Current price=D1 / (Required return-Growth rate)

=5 / (0.12-0.05) = 5/0.07 = $71.43