Question

2. Management has recently announced that expected dividends for the next four years will be as...

2. Management has recently announced that expected dividends for the next four years will be as follows:

Year

Dividend

1

$1.50

2

$2.00

3

$2.25

4

$2.75

For the subsequent years, management expects the dividend to grow at 4 percent annually. If the risk-free rate is 5.3 percent, the return on the market is 11 percent, and the firm’s beta is 1.25, what is the maximum price that you should pay for this

stock?

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Answer #1

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MAXIMUM PRICE = 27.47

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