Question

1. Asonia Co. will pay a dividend of $4.70, $8.80, $11.65, and $13.40 per share for each of the next four years, respectively. The company will then close its doors. If investors require a return of 11.1 percent on the company's stock, what is the stock price?

Multiple Choice

• $33.54

• $28.65

• $31.15

• $41.40

• $35.40

2. Knightmare, Inc., will pay a dividend of $6.15, $9.05, and $12.25 per share for each of the next three years, respectively. The company will then close its doors. Investors require a return of 11.7 percent on the company's stock. What is the current stock price?

Multiple Choice

• $25.34

• $21.55

• $27.29

• $34.05

• $28.88

Answer 1

1.Current price=Future dividends*Present value of discounting factor(rate%,time period)

=4.70/1.111+8.80/1.111^2+11.65/1.111^3+13.40/1.111^4

=$28.65(Approx).

2.Current price=Future dividends*Present value of discounting factor(rate%,time period)

=6.15/1.117+9.05/1.117^2+12.25/1.117^3

=$21.55(Approx).