Question

You want to purchase some shares of JJ Farms stock but need a 14.5 percent rate of return to compensate for the perceived risk. What is the maximum you are willing to spend per share to buy this stock if the company pays a constant $1.25 annual dividend per share?9.38$9.11$8.62$9.26$8.47

Answer 1

$8.62

Step-by-step explanation:

In order to calculate this you just have to do a rule of thirds, in this case you need a 14.5% of rate return to compensate for the risk, so that 14.5% should be equal to the annual dividend, so 14.5%=1.25 how much would the 100% would be and that is the cost per share:

`(1.25)/(14.5) =(x)/(100)\\ x=(1.25(100))/(14.5) \\x=(125)/(14.5)\\ x=8.62`

So we now know that the maximum per share that you would be willing to pay would be 8.62 dollars.