Asked by Jenna D'Amour on Jun 05, 2024
Verified
A common stock pays an annual dividend per share of $1.80. The risk-free rate is 5%, and the risk premium for this stock is 4%. If the annual dividend is expected to remain at $1.80 per share, what is the value of the stock?
A) $17.78
B) $20
C) $40
D) none of these options
Risk-Free Rate
The return on an investment perceived as having no risk of financial loss, typically associated with government bonds.
Risk Premium
The additional return expected for investing in a risky asset over a risk-free asset.
Dividend Per Share
The sum of declared dividends for every common share issued, divided by the total number of shares outstanding.
- Implement the dividend discount model together with different valuation models to ascertain the value of a stock.
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Learning Objectives
- Implement the dividend discount model together with different valuation models to ascertain the value of a stock.