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Minimum possible value of the expected stock

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Reference no: EM132856005

The current price of a stock is 25. The stock pays quarterly dividend of 0.02 with the first dividend being paid 2 months from now. The continuously compounded riskfree interest rate is 5% per year. Suppose the investors in this stock demand to be compensated for risk.

What is

(a) the minimum possible value of the expected stock price 3 years from now, and

(b) the corresponding continuously compounded rate of return per year in the 3-year horizon?

Reference no: EM132856005

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