Suppose a stock pays a dividend of $3 per share each year, and you don’t expect that dividend to change. Using the zero-growth model answer the following: (a) If you want a 10% return on your investment, how much should you be willing to pay for the stock? (b) The Fed cut the interest rate by 2%, causing the required investment return drop to 8%. What’s the value of a share of stock?

Suppose a stock pays a dividend of $3 per share each year, and you don’t expect that dividend to change. Using the zero-growth model answer the following: (a) If you want a 10% return on your investment, how much should you be willing to pay for the stock? (b) The Fed cut the interest rate by 2%, causing the required investment return drop to 8%. What’s the value of a share of stock?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 11P

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