Suppose that the wage is $20 per hour in a two-sector (manufacturing and agriculture) specific-factors model. Currently, the pri
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The second stock will be the best one to hold by the investor
Explanation:
Value of stock = D1 / r – g.
D1 = the annual expected dividend of the next year.
r = rate of return.
g = the expected dividend growth rate (assumed to be constant)
Stock D1
Dividend of D1 = 10, Expect a return of rE= 10% growth rate =5%
Value of stock (1) =10÷(0.1-.05)=200
Stock D2
Dividend of D2 = 100, Expect a return of rE= 10% growth rate =6%
Value of stock (2) =100÷(0.1-.06)=2500
So the stock D2 which pays 100 as dividend and having a growth rate of 6% is best