Question

Asonia Co. will pay a dividend of $4.50, $8.60, $11.45, and $13.20 per share for each of the next four years, respectively. The company will then close its doors. If investors require a return of 10.5 percent on the company's stock, what is the stock price?

Answer 1

$28.50

Step-by-step explanation:

Stock price = Future dividends*Present value of discounting factor(10.5%,time period)

Stock price = $4.50/1.105 + $8.60/1.105^2 + $11.45/1.105^3 + $13.20/1.105^4

Stock price = $4.50/1.105 + $8.60 / 1.2210 + $11.45/1.3492 + $13.20/1.4909

Stock price = $4.0724 + $7.0434 + $8.4865 + $8.8537

Stock price = $28.456

Stock price = $28.50