Question

nine years ago a stock paid a $1.35 dividend since then it has split 3-for-1 two times. the current dividend is 0.15 if you have required rate of return of 15% what is the most you can pay for this stock

Answer 1

Answer: Price is $1

Explanation:

we can use the perpetuity formula to calculate the present value of a share, the present value of share represents the maximum amount that an investor would be willing to pay for a share

Dividends = 0.15 cents

required rate of return = 15%

Present value = 0.15 cents/0.15 = 1

Price =$1