What price would you expect to pay for a stock with

13%required rate of return, 4% rate of dividend growth, and an

annualdividend of $2.50 which will be paid tomorrow?

Question

Mathematics

Sarah Bowers

18 August, 01:18

What price would you expect to pay for a stock with

13%required rate of return, 4% rate of dividend growth, and an

annualdividend of $2.50 which will be paid tomorrow?

+3

Answers (1)

Know the Answer?

Ivan Beltran · Answer 1

31.39 dollars.

Step-by-step explanation:

The market value of share can be determine using following formula.

MV = Dividend (1+g) / (KE-g)

where g = growth rate

KE = require rate of return

MV = 2.5 (1.04) / (0.13-0.04) = 28.89

As dividend payment is to be made tomorrow so it will also be included in current market price.

Market price = 28.89 + 2.5 = 31.39 dollars

What price would you expect to pay for a stock with13%required rate of return, 4% rate of dividend growth, and anannualdividend of $2.50 which will be paid tomorrow?

What price would you expect to pay for a stock with

13%required rate of return, 4% rate of dividend growth, and an

annualdividend of $2.50 which will be paid tomorrow?