Respuesta :
Answer:
maximum Current Price of Stock = $26.57
correct option is C. $26.57
Explanation:
given data
dividend = $6 per share
increase the dividend = $1 per share
time = 4 year
return = 10 % = 0.1
to find out
How much are you willing to pay per share today to buy this stock
solution
we know that Current price we find dividend that is here
Year Dividend
1 (6+1) = $7
2 (7+1) = $8
3 (8+1) = $9
4 (9+1) = $10
so here current price by dividend and present value
current price = [tex]\frac{D1}{(1+r)^1} +\frac{D2}{(1+r)^2} +\frac{D3}{(1+r)^3} +\frac{D4}{(1+r)^4}[/tex]
current price = [tex]\frac{7}{(1+0.1)^1} +\frac{8}{(1+0.1)^2} +\frac{9}{(1+0.1)^3} +\frac{10}{(1+0.1)^4}[/tex]
current price = $26.57
correct option is C. $26.57
