Question

Your answer: Question 11 (CHAPTER 8) Constantine pays a constant $5.5 dividend on its stock. The company will maintain this dividend for the next 15 years and will then cease paying dividends forever. If the required return on this stock is 8.3 percent, what is the current share price? (Do not use "$" in your answer. Increase decimal places for any intermediate calculations, from the default 2 to 6 or higher. Only round your final answer to TWO decimal places: for example, 100.23.)

Answer 1

Answer to Question 11:

Constant dividend for 15 years = $5.50
Required return = 8.30%

Current share price = $5.50/1.0830 + $5.50/1.0830^2 + … + $5.50/1.0830^14 + $5.50/1.0830^15
Current share price = $5.50 * (1 - (1/1.0830)^15) / 0.0830
Current share price = $5.50 * 8.404892
Current share price = $46.23