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Gentleman Gym just paid its annual dividend of $2 per share, and it is widely expected that the dividend will increase by 5 percent per year indefinitely. What price should the stock sell at? The discount rate is 15 percent.

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Solution Summary

This solution calculates the price of a stock based on its dividend payment, annual increase and discount rate.

Solution Preview

To solve this problem (a growing perpetuity) the following formula can be used:
Stock price = Dividend/(Discount ...

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