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A wealth manager considers investment in a company that is expected to pay a $6 cash...

A wealth manager considers investment in a company that is expected to pay a $6 cash dividend next year and grow by 5% every year. Given the required rate of return is 10%, what is the maximum value of the stock?

A. 200

B. 100

C. 120

D. infinite

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Answer #1

Current price=D1/(Required return-Growth rate)

=6/(0.1-0.05)

which is equal to

=$120

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