Question

The Stagnant Growth Corporation has paid a constant dividend of $2.50 per year for the past 3 years and is expected to continue paying the same dividend per share for the foreseeable future. If the required rate of return on its common stock is 12%, the most an investor should pay per share is _____. (Round to two decimal places.)

Answer 1

Answer:

20.83%

Explanation:

Data provided

Dividend = $2.50

Required rate of return = 12%

The computation of the current price of the stock is shown below:-

The current price of stock = Dividend ÷ Required rate of return

= $2.50 ÷ 12%

= 20.83%

So, for computing the current price of the stock we simply divide the dividend by required rate