Question

A share of stock in​ Pria-Utang Corporation pays an annual dividend of ​$5. The current market price is ​$60. From the list of individuals​ below, identify who is likely to be a buyer or a seller of this stock. ​(Each person currently owns 100​ shares.)Individual Required Return Expected Growth in Dividends Buy or​Sell? Janey ​ 10% ​6% _______.Jimmy ​12% ​2% _______. Jonny ​20%​5% _______.

Answer 1

Janey will BUY, Jimmy will SELL and Jonny will SELL.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Annual dividend = $5

Current market price = $60

Now first we calculate the value of the stocks, hence,

Value of the share

1. Janey = ( 5 × (1 + 6%)) ÷ (10% - 6%)

= ( 5 × 1.06) ÷ (0.04)

= 132.50

So, Janey will BUY because market price is lower than value of the share

2. Jimmy = ( 5 × (1 + 2%)) ÷ (12% - 2%)

= ( 5 × 1.02) ÷ (0.1)

= 51.00

So, Jimmy will SELL because market price is higher than value of the share.

3. Jonny = ( 5 × (1 + 5%)) ÷ (20% - 5%)

= ( 5 × 1.05) ÷ (0.15)

= 35.00

So, Jonny will SELL because market price is higher than value of the share.