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A firm has declared that its next dividend will be .75. If youexpect the dividend...

A firm has declared that its next dividend will be .75. If you expect the dividend to grow by 4% per year and you require an 11% return, what is the maximum price you will be willing to pay for this stock today? Show your work for partial credit.

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Expert Solution

The price is computed as shown below:

= Next Dividend / (rate of return - growth rate)

= 0.75 / (0.11 - 0.04)

= 10.71 Approximately

jeff jeffy answered 2 years ago
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