Answer:
The maximum that will be paid for the stock is $40.91.
Explanation:
This can be calculated using the dividend yield formula as follows:
Dividend yield= Dividend per share ÷ Price per share ............... (1)
Where;
Dividend yield = required rate of return = 11%, or 0.11
Dividend per share = $4.50
Price per share = ?
Substituting the values into equation (1), we have:
0.11 = $4.50 ÷ Price per share
Making price per share the subject of the formula, we have:
Price per share = $4.50 ÷ 0.11 = $40.91
Therefore, the maximum that will be paid for the stock is $40.91.
