7. In one year, a firm will pay a common stock dividend of $3.35. The dividends...
7. In one year, a firm will pay a common stock dividend of $3.35. The dividends have been growing at 6% per year. Based on analysts’ forecasts, you predict that you will be able to sell your stock for $48 per share after one year. If you require a rate of return of 14 percent on your stock, how much would you be willing to pay now for a share of the stock?
a) $51.37 c)$42.11 e) $58.54
b) $45.04 d) $48.00
Homework Answers
Current price=Future dividends and value*Present value of discounting factor(rate%,time period)
=3.35/1.14+48/1.14
which is equal to
=$45.04(Approx).
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