Question

JLT Corp.'s management just announced that next year's annual dividend will be $3.60. This represents a 3.0% decline from its most recent dividend. Management also announced that going forward it expects to continue to reduce the stock's future payouts by 3.0%. Your required return on the stock is 14.5%. What price would you pay for a share of JLT stock? $30.37 • $19.95 $24.83 $31.30 $20.52

Answer 1

In dividend growth model,

P = D1/Er-g

Where,

P= price of the share

D1= Expected dividend

g= growth rate

Er= required return

Current price of the stock,

P = $3.60/(0.145-(-0.03))

P = $3.60 / 0.175

P = $20.57

Therefore, price I would pay for the stock now is $20.57.

Therefore, 5th option is the correct answer.