What is the maximum stock price that should be paid for a stock today that is expected to consistently pay a $5 quarterly dividend (paid out to the investor) if its price is expected to be $100 in 3 years (12 quarters)? The investor expects a minimum acceptable rate of return (MARR) of 10% with quarterly compounding.© BrainMass Inc. brainmass.com October 10, 2019, 3:11 am ad1c9bdddf
The first step is to find the present value of the dividend payments. We can find this by finding the present value of an annuity, which is equal to A[(1-(1/(1+(r/m))^(nm)))/(r/m)], where A = $5, r = .1, n = 3, and m = 4. Given this, the ...
The maximum stock price is uncovered in this solution.