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zloy xaker [14]
3 years ago
9

The FabulousHI Company expects a constant growth in earnings and dividends of 2.5%/year into the foreseeable future. It is expec

ted that the next dividend paid to stockholders will be $1.20/share. Currently the market of investors is demanding or requiring 7% on this investment.a) What is the current value of the stock?b) What is the capital gains yield on this stock?
Business
1 answer:
Lunna [17]3 years ago
7 0

Answer:

a. $26.67

b. 2.50%

Explanation:

a. Computation of the current value of the stock is given below:-

Price of stock ÷ Required rate of return - Growth rate

= $1.20 ÷ (0.07 - 0.025)

=  $1.20 ÷ 0.045

= $26.67

b. Computation of capital gains yield on this stock is shown below:-

= Required rate - Dividend yield

= 7% - ($1.20 ÷ $26.67)

= 7% - 0.04499

= 2.50%

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To avoid major inconveniences, a roommate agreement should be signed among the individuals sharing the apartment so in the document, they formally establish the responsibilities and limits they have by sharing the same department and, in front of problems, the document will make it easier to determine who could be at fault.

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