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Mr Arthur's stock purchase of Bingham Corporation

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Mr. Arthur recently purchased a block of 100 shares of Bingham Corporation common stock for $6,000. The stock is expected to provide an annual cash flow of dividends of $400 indefinitely. Assuming a discount rate of 8 percent how does the price Mr. Arthur paid compare to the value of the stock?

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Solution Summary

The solution details out how to calculate present value of an infinite cash flow stream.

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