Question

Gerold's travel service just paid $1.79 to its shareholders as the annual dividend. simultaneously, the company announced that future dividends will be increasing by 3.2 percent. if you require a 10.5 percent rate of return, how much are you willing to pay to purchase one share of this stock? $17.59 $20.64 $24.08 $24.52 $25.31

Answer 1

You are willing to pay to purchase one share of this stock at $25.31, if you require a 10.5 percent rate of return. D1 = 1.79 * 1.032 = 1.847   r = .105  and g = .032 is the given in this question. We will most likely willing to pay to purchase one share of this stock at $25.31