You have decided that you would like to own some shares of GH Corp. but need an expected 12% rate of return to compensate for th

Question

3 years ago

11

You have decided that you would like to own some shares of GH Corp. but need an expected 12% rate of return to compensate for th

e perceived risk of such ownership. What is the maximum you are willing to spend per share to buy GH stock if the company pays a constant $3.50 annual dividend per share?

Business

1 answer:

oee [108] · Answer 1 · 2022-04-09T07:57:51+03:00

Answer:

Share price = 29.16

Explanation:

Given:

Dividend paid = $3.50

Required rate of return = 12% = 12/100 = 0.12

Growth rate = 0%

Find:

Share price = ?

Computation:

⇒ Share price = Dividend paid / [Required rate of return - Growth rate ]

⇒ Share price = $3.5/(0.12-0)

⇒ Share price = 29.16