Share
Explore BrainMass

Determining Price and rate of return of stock

1) Megan made two announcements concerning its common stock today. First, the company announced that its next annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Megan's stock if your goal is to earn a 10% rate of return?

2) The common Stock of Eddies Engines, Inc. Sells for $25.71 a share. The stock is expected to pay $1.80 per share next month when the annual dividend is distributed. Eddie's has established a pattern of incrasing it dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock?

Solution Preview

1) Megan made two announcements concerning its common stock today. First, the company announced that its next annual dividend has been set at $2.16 a share. Secondly, the company announced that all future dividends will increase by 4% ...

Solution Summary

Solution describes the steps in determining price and rate of return for stocks in case of constantly increasing dividends.

$2.19