Question

g suppose that bigbucks company pays a dividend this year of $7 per share. You expect the dividend to grow by 2% per year, so you discount bigbucks dividend at 4%. What is the most youwould be willing to pay for a share of stock in bigbucks

Answer 1

Answer:

$357

Explanation:

The price that g would pay for the stock of the bigbucks shall be determined through the following mentioned formula:

Price of stock of big bucks=[D(1+g)/(r-g)]

In the given question

D=dividend paid by the Big bucks this year=$7

g=growth rate in dividend=2%

r=discount rate=4%

Price of stock of big bucks=[7(1+2%)/(4%-2%)]

                                            =$357