Question

Singing Fish Fine Foods has a current annual cash dividend policy of ​$2.502.50. The price of the stock is set to yield a return of 14 %14%. What is the price of this stock if the dividend will be paid a. for 1212 ​years

Answer 1

Answer/ explanation:

Using the finite constant dividend model except with f (use infinite constant dividend model)

Price = Dividend × (1 – 1/(1+r)n) / r

a.Price = $2.25 × (1 – 1/(1.12)10/ 0.12 = $2.25 × 5.6502 = $12.71

b.Price = $2.25 × (1 – 1/(1.12)15/ 0.12 = $2.25 × 6.8109 = $15.32

c.Price = $2.25 × (1 – 1/(1.12)40/ 0.12 = $2.25 × 8.2438 = $18.54

d.Price = $2.25 × (1 – 1/(1.12)60/ 0.12 = $2.25 × 8.3240 = $18.73

e.Price = $2.25 × (1 – 1/(1.12)100/ 0.12 = $2.25 × 8.3332 = $18.75

f.Price = $2.25 / 0.12 = $18.754.