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You are considering purchasing stock. The stock is expected to pay a dividend of ​$94 per share. The consensus of investors is that these dividends will increase at a rate of 4 percent per year for the indefinite​ future, and the interest rate is 12 percent. The price of the stock should be ​$ ________.

Respuesta :

estebancgo

Answer:

PV=1,175

Explanation:

this question can be solved thinking as  if we have a perpetuity, it is a future infinite payments, but in this particular case we have those payments (dividends) increasing over the time, so we can apply the next formula:

[tex]PV=\frac{94}{i-k}[/tex]

where PV is the present value of the future payments, i is the interest rate and k is the annual increasing, so applying to this data we have:

[tex]PV=\frac{94}{0.12-0.04}[/tex]

[tex]PV=1,175[/tex]

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