Question

Arcs and Triangles paid an annual dividend of $1.47 a share last month. The company is planning on paying $1.55, $1.63, and $1.65 a share over the next three years, respectively. After that, the dividend will be constant at $1.70 per share per year. What is the market price of this stock if the market rate of return is 11 percent?
a) $13.98
b) $14.07
c) $15.23
d) $17.16
e) $13.10

Answer 1

Answer:

Market price of the stock = $15.23

so here correct option is c) $15.23

Explanation:

given data

annual dividend = $1.47

pay = $1.55, $1.63, and $1.65

dividend constant = $1.70 per share per year

to find out

market price of this stock if the market rate of return is 11 percent

solution

we find Market price of the stock that will be here

Market price of the stock =  $\frac{1.55}{1+0.11} +\frac{1.63}{(1+0.11)^2} +\frac{1.65}{(1+0.11)^3}+ \frac{1.70}{0.11} * \frac{1}{(1+0.11)^3}$      

solve it we get Market price of the stock

Market price of the stock = $15.23

so here correct option is c) $15.23