Question

Ron Santana is interested in buying the stock of First National Bank. While the bank's management expects no growth in the near future, Ron is attracted by the dividend income. Last year the bank paid a dividend of $5.65. If Ron requires a return of 14 percent on such stocks, what is the maximum price he should be willing to pay for a share of the bank's stock?

Answer 1

Answer:

the maximum price that willing to pay is $40.36

Explanation:

The computation of the maximum price that willing to pay is shown below:

= Annual dividend ÷ required rate of return

= $5.65 ÷ 14%

= $40.36

Hence, the maximum price that willing to pay is $40.36

we simply applied the above formula so that the correct price could come