Answer:
$6.29
Explanation:
Dividend is $1.31 per share
Decreased by 4%
Required return is 16%
Therefore:
Price = [$1.31 × (1 - .04)]/[.16 - (-.04)] = $6.29
Answer:
I should pay $10.92 per share for the stock today as shown below
Explanation:
The maximum price a rational investor could pay for a share is given by the formula:
Po=Div/rate of return-growth rate
Po is the price to paid
Rate of return here is 16%,which is similar to return on equity
The growth rate of the share of the dividend is 4%
Po=$1.31/(0.16-0.04)
Po =$10.92
The price has factored in both the dividend yield and gains yield of the share.
dividend yield is the return earned by share through dividends
gains yield is another return earned by share through appreciation in its price in the market place-stock exchange
Total return on return on share is the sum of both.
