Answer:
A.) $1.667
B.) $6.667
C.) $11.667
D.) $16.667
Explanation:
GIVEN ;
Rate of return(r) = 15% = 0.15
Calculate what the stock price should be today if:
A.) $0.25 constant annual dividend forever
Dividend = payment per period
Therefore,
Price = (payment per period ÷ rate)
Price = ($0.25 ÷ 0.15) = $1.667
B.)$1.00 constant annual dividend forever
Price = (payment per period ÷rate)
Price = ($1.00 ÷ 0.15) = $6.667
C.)$1.75 constant annual dividend forever
Price = (payment per period ÷rate)
Price =($1.75 ÷ 0.15) = $11.667
D.)$2.50 constant annual dividend forever
Price = (payment per period ÷rate)
Price = ($2.50 ÷ 0.15) = $16.67
Answer:
We have the following answers for each as
a. $1.667
b. $6.667
c. $11.667
d. $16.667
Explanation:
We are been given the return rate as
Return rate = 15%/100%
Return rate= 0.15
Evaluating the stock price for, a, b, c d stating with a, we have
a. At $0.25 the constant annual dividend forever will be
Payment per period = dividend
The price of the divided will be
Price = payment per period ÷ rate
Which we have as
Price = $0.25 ÷ 0.15
Price = $1.667
b. At $1.00 the constant annual dividend forever will be
Price = payment per period ÷rate
Just as in a
Price = $1.00 ÷ 0.15
Price= $6.667
c. At $1.75 the constant annual dividend forever will be
Price = payment per period ÷rate
Which is the same to the previous method
Price =$1.75 ÷ 0.15
Price = $11.667
d. At $2.50 the constant annual dividend forever will be
Price = payment per period ÷rate
Just in the other calculation we have
Price = $2.50 ÷ 0.15
Price = $16.67
