Question

You want to purchase some shares of JJ Farms stock but need a 14.5 percent rate of return to compensate for the perceived risk. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $1.25 annual dividend per share?
a) $9.38
b) $9.11
c) $8.62
d) $9.26
e) $8.47

Answer 1

Answer:

correct option is c) $8.62

Explanation:

given data

rate of return = 14.5 percent

annual dividend = $1.25  per share

solution

we get here maximum willing to spend per share that is express as

maximum investment =  annual dividend  ÷ rate of return   .................1

put her value and we will get

maximum investment  = $\frac{1.25}{14.5 }$

maximum investment  = $8.62

so correct option is c) $8.62