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Michael's, Inc., just paid $1.90 to its shareholders as the annual dividend. Simultaneously, the company announced that future dividends will be increasing by 4.2 percent. If you require a rate of return of 8.5 percent, how much are you willing to pay today to purchase one share of the company's stock?

Respuesta :

Answer:

$44.18

Explanation:

The price can be easily calculated by the simple formula,

Price of stock = Dividend / (rate of return - growth of dividend)

Hence,

Price of stock = 1.90 / (0.085 - 0.042)

Price of stock = $44.18.

Hope you understand this simple equation

Thanks buddy.

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