Jessica's Home Interiors offers a common stock that pays an annual dividend of $1.60 a share....

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Question

Jessica's Home Interiors offers a common stock that pays an annual dividend of $1.60 a share....

Jessica's Home Interiors offers a common stock that pays an annual dividend of $1.60 a share. The company has promised to maintain a constant dividend. How much are you willing to pay for one share of this stock today if you want to earn a 9% return on your investments?

Select one:

a. $18.05

b. $18.16

c. $17.78

d. $17.97

business accounting

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Answer 1

Answer #1

Answer:

Amount willing to pay for one share of Stock
            = Annual dividend x ( 1 + growth rate ) / ( Cost of equity (-) growth rate )
            =    ($ 1.60 x ( 1 + 0 % ) ) / ( 9% (-) 0% )
            =   $ 1.60 / 9%
            =   $ 17.78

Amount willing to pay for one share of Stock = $ 17.78

Option (c ) is Correct

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Answer 2

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