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10.George is considering buying CyCorp stock. He estimates that each share will pay a dividend of...

10.George is considering buying CyCorp stock. He estimates that each share will pay a dividend of $21 in three months and another $21 dividend in six months, at which time he will sell the stock for $600 per share. His required rate of return is 0.108 per year compounded quarterly. What is a fair price per share?

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Answer #1

Dividend in 1 quarter = $21
Dividend in 2 quarters = $21
Stock price in 2 quarters = $600

Annual required return = 0.1080
Quarterly required return = 0.1080 / 4
Quarterly required return = 0.027

Current share price = $21/1.027 + $21/1.027^2 + $600/1.027^2
Current share price = $609.22

So, a fair price per share is $609.22

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