Business, 04.01.2021 02:30 xXwolfieplayzXx

ETP Corp. paid an annual dividend last year of $5 per share. The company follows a policy to raise dividends each year by 2%. The company will be in business for 8 years and not have a liquidating dividend. The required rate of return for this investment is 10%. What is the price of this stock today? a. 63.75
b. 28.91
c. 28.34
d. 62.50

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Answer from: lexigarwood

b. $28.91

Explanation:

The current price will be the present value of all future dividend payments till the company ceases operations in 8 years.

Price of stock = Sum of present value of dividends

The dividends here are increasing at a rate of 2% per year.

Year Dividend Present Value

1 $5.10 5.10/ (1 + 10%) = $4.64

2 $5.20 5.20/ 1.1² = $4.30

3 $5.30 5.30 / 1.1³ = $3.98

4 $5.41 5.41 /1.1⁴ = $3.70

5 $5.52 5.52/1.1⁵ = $3.43

6 $5.63 5.63/1.1⁶ = $3.18

7 $5.74 5.74/1.1⁷ = $2.94

8 $5.85 5.85/1.1⁸ = $2.73

Total $28.91

Answer from: Quest

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Which of the following will typically offer zero interest rate?

Which of the following will typically offer zero interest rate?

Answer from: Quest

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ETP Corp. paid an annual dividend last year of $5 per share. The company follows a policy to raise d...

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