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algol13
3 years ago
11

How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividen

ds increase by 2.5 percent annually, and you require a 10 percent rate of return
Business
1 answer:
olga2289 [7]3 years ago
5 0

Answer:

$9.57 per stock

Explanation:

using the dividend discount model to find the stock's current price (P₀):

P₀ = Div₁ / (Re - g)

  • Div₁ = $0.70 x 1.025 = $0.7175
  • Re  = 10%
  • g = 2.5%

P₀ = $0.7175/ (10% - 2.5%) = $0.7175/ 7.5% = $9.5667 ≈ $9.57 per stock

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