A stock is expected to pay a constant dividend of $3/share every quarter (every 3 months)...

A stock is expected to pay a constant dividend of $3/share every quarter (every 3 months) and the first dividend is expected in exactly 1 year. If the market's required return on this stock is 11% PER YEAR, what is the market value of the stock today? [Express your final answer in dollars and cents (rounded to 2 decimal places)]

Market Value = $ per share

Solutions

Expert Solution

Calculation of the market value of the stock today:

Formula

Current market price = (Quarterly Dividend / Quarterly rate) x [1/ (1+Quarterly rate)^3]

= ($3 / 2.75%) x [ 1 / (1+ 0.0275)^3]

= $109.0909 x 1/(1.0275)^3

= $109.0909 x 0.921838

= $100.56 per share (Answer)

(Note: Quarterly rate = Required rate of return / 4)

jeff jeffy answered 1 year ago

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