What should you pay for a share of stock if the most recent dividend paid was $3.50 per share, you require a rate of ret...

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What should you pay for a share of stock if the most recent dividend paid was $3.50 per share, you require a rate of ret...

What should you pay for a share of stock if the most recent dividend paid was $3.50 per share, you require a rate of return of 10%, and dividends are expected to grow at a constant rate of 2% per year?

business economics

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Answer 1

Answer #1

Stock price = D1 / (interest rate - growth rate)

= 3.5 * 1.02 / (0.1 - 0.02)

= 3.5 * 1.02 / 0.08

= 44.625 ~ 44.63

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Answer 2

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