Question
Exercise 4 George estimates that the dividend of ABC Company, an established textile producer, is expected to remain constant at $3 per share indefinitely. Calculate the stock's value if the market's interest rate is 15%.
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Answer

The price of the stock which has a constant dividend is calculated with the following formula, Price = D / re D= Dividend Re= required rate of return In the given case, D= $ 3 Re= 15 % Therefore, the price of the share = $ 3 /15 % = $ 20 So, the price of a share should be $ 20 per share,

Exercise 4 George estimates that the dividend of ABC Company, an established textile producer, is expected to remain constant at $3 per share indefinitely. Calculate the stock's value if the market's interest rate is 15%.

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