Question

dividend of $2.82 per share next year. the company pledges to increase its dividend by 3 percent per year indefinitely. if you require a return of 10 percent on your investment, how much will you pay for the company's stock today

Answer 1

Answer:

The correct answer is $40.29

Explanation:

Price of stock (Po)

D1 Dividend next year = $2.82

r Required return = 10%

g Growth rate = 3%

Po = D1/r-g

Po = $2.82/ 10%-3% = $40.285 = $40.29

The price for the stock today is  $40.29