Question

Suppose you expect Amazon to pay an annual dividend of $5 per share in the coming year, and $6 dollars in the year after that, and to trade $1750 per share at the end of the second year. If investments with equivalent risk to Amazon’s stock have an expected return of 13%, what is the most you would pay today for Amazon’s stock? What capital gain yield would you expect at this price? Select one:

a. Price = 1379.63, capital gain yield = 29%

b. Price = 1458.23, capital gain yield = 26.85%

c. Price = 1379.63, capital gain yield = 26.85%

d. Price = 1458.23, capital gain yield = 29%

Answer #1

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