Answer using the Gordon Growth Model under the Efficient Market Hypothesis Jimmy decides to invest in MSFT common stock. He expects that the stock will pay $1 dividend per share next year and its price will be $20 per share by the end of year when he is going to resell the stock. After

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Answer using the Gordon Growth Model
under the Efficient Market Hypothesis
Jimmy decides to invest in MSFT common
stock. He expects that the stock will pay $1
dividend per share next year and its price
will be $20 per share by the end of year
when he is going to resell the stock. After
some careful analysis Jimmy finds that the
company's business operation risk has
increased over the past year due to the
recent financial and economic crisis. As a
result, his required rate of return on the
stock is 15%. What is the maximal price that
Jimmy is willing to pay for the stock?
a. $16.33
b. $17.15
c. $18.26
d. $19.47
e. $20.18
Transcribed Image Text:Answer using the Gordon Growth Model under the Efficient Market Hypothesis Jimmy decides to invest in MSFT common stock. He expects that the stock will pay $1 dividend per share next year and its price will be $20 per share by the end of year when he is going to resell the stock. After some careful analysis Jimmy finds that the company's business operation risk has increased over the past year due to the recent financial and economic crisis. As a result, his required rate of return on the stock is 15%. What is the maximal price that Jimmy is willing to pay for the stock? a. $16.33 b. $17.15 c. $18.26 d. $19.47 e. $20.18
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