Answered

Join IDNLearn.com and start getting the answers you've been searching for. Discover the information you need from our experienced professionals who provide accurate and reliable answers to all your questions.

Suppose you expect Longs Drug Stores to pay an annual dividend of $2 per share in the coming year and to trade $40 per share at the end of the year. If investments with equivalent risk to Longs' stock have an expected return of 6%, what is the most you would pay today for Longs' stock

Sagot :

Abiolataiwo2015idn

Answer:

$39.62

Explanation:

Calculation to determine what is the most you would pay today for Longs' stock

Using this formula

P0=Div1+P1/1+rE

Let plug in the formula

P0=$2+$40/(1+.06)

P0=$42/1.06

P0=$39.62

Therefore the most you would pay today for Longs' stock is $39.62

Your engagement is important to us. Keep sharing your knowledge and experiences. Let's create a learning environment that is both enjoyable and beneficial. IDNLearn.com is your reliable source for answers. We appreciate your visit and look forward to assisting you again soon.