Question

MC algo 8-18 Valuing Stock Asonia Co. will pay a dividend of $5.10, $9.20, $12.05, and $13.80 per share for each of the next four years, respectively. The company will then close its doors. If investors require a return of 9.4 percent on the company's stock, what is the stock price?

a. $3708
b. $32.88
c. $42.38
d. $3119
e. $35.41

Answer 1

d. $31.19

Step-by-step explanation:

The computation of the stock price is shown below

Stock Price is

= [$5.10 ÷ (1 + 0.094)^1 + $9.20 ÷ (1 + 0.094)^2 + $12.05 ÷ (1 + 0.094)^3 + $13.80 ÷ (1+0.094)^4]

= $4.66 + $7.69 + $9.20 + $9.63

= $31.19

hence, the option d is correct