Company shares pay an annual dividend

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A company shares pay an annual dividend of $10 this year (D₀ in the textbook) and promises that its dividend will grow at a rate of 4% per year for the indefinite future. The risk-free interest rate is 3%. However, an asset holder requires a risk premium of 5%. The current price of the shares of this company is $200 a share. The asset holder has $20,000 free cash that he wishes to invest.

Should he invest in this company?

Reference no: EM131346261

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