Suppose you expect Longs Drug Stores to pay an annual dividend of $2 per share in the coming year and to trade $40 per share at

Question

3 years ago

12

Suppose you expect Longs Drug Stores to pay an annual dividend of $2 per share in the coming year and to trade $40 per share at

the end of the year. If investments with equivalent risk to Longs' stock have an expected return of 6%, what is the most you would pay today for Longs' stock

Business

1 answer:

Gekata [30.6K] · Answer 1 · 2022-09-04T01:19:11+03:00

Gekata [30.6K]3 years ago

5 0

Answer:

$39.62

Explanation:

Calculation to determine what is the most you would pay today for Longs' stock

Using this formula

P0=Div1+P1/1+rE

Let plug in the formula

P0=$2+$40/(1+.06)

P0=$42/1.06

P0=$39.62

Therefore the most you would pay today for Longs' stock is $39.62