If the market value of a telecommunications share is $287.95, calculate the year-end dividends that it should be able to pay in perpetuity if money is worth 4.75% compounded semi-annually.

Expert Solution

semi annual rate = s = 4.75%

annual interest rate = r = (1+s/n)^n-1 ; where n = no of half years in a year = 2;

annual interest rate = r = (1+4.75%/2)^2-1 = 0.0480640625 = 4.80640625%

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To find the dividend paid in year end;

By Perpetuity formula; Share price = dividend/r

287.95 = dividend/0.0480640625

dividend = 287.95* 0.0480640625 = 13.84 $ (to be paid in perpetuity)

Nabeel answered 2 years ago

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