Question

INTC just paid an annual dividend of $3.40 a share and is expected to increase that amount by 2.2 percent per year. If you are planning to buy 1,000 shares of INTC in two years, how much should you expect to pay per share if the market rate of return for this type of security is 14.8 percent at the time of your purchase

Answer 1

the price of the share is $28.18 per share

Step-by-step explanation:

The computation of the price of the share is given below

Dividend at year 1

= 3.4% ×(1 + 2.2%)

= 3.4748

Dividend at year 2

= 3.4748 × (1 + 2.2%)

= $3.55

Now the price of the share is

= ($3.55) ÷ (14.8% - 2.2%)

= $28.18 per share

Hence, the price of the share is $28.18 per share