Answer: $27.47
Explanation:
Given: Growth rate = 4.70% per year = 0.0470 per year
Dividend of next year = $2.50
Expected rate of return on Stock = 13.80% =0.1380
Current price = (Dividend of next year ) ÷ (Expected rate - Growth rate)
= (2.50)÷ (0.1380-0.0470)
= (2.50) ÷ (0.091)
≈ $27.47
Hence, you will pay $27.47 for the company's stock today.
In general, the ex-ante risk return tradeoff is to slopes downward.
Answer is B.
Hopes it helped
