Question

A share of stock in Enbridge Inc. pays an annual dividend of ​$3.34, and the dividend is expected to grow at 2%, on average, in the foreseeable future. The current market price is ​$44.58/share.

Below are the three individuals based on risk perception by each individual (from low to high). Identify who will likely be a buyer or a seller of this stock. ​(Each individual currently owns 100​ shares.)
Individual X has a discount rate of 5%
Individual Y has a discount rate of 8%
Individual Z has a discount rate of 11%

Answer 1

Individual Z will likely be a seller of the stock, while individual X will likely be a buyer.

Step-by-step explanation:

Each individual's discount rate, or required rate of return, is a reflection of their risk perception. The higher the discount rate, the higher the perceived risk. In this case, individual Z has the highest discount rate of 11% while individual X has the lowest discount rate of 5%. A higher discount rate indicates a lower willingness to pay for the stock, while a lower discount rate indicates a higher willingness to pay. Therefore, individual Z will likely be a seller of the stock, while individual X will likely be a buyer.