Perpetual dividends and two period dividend and final price

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Reference no: EM131459174

Problem 1 Perpetual dividends

Suppose that a share pays a dividend of $4 annually, forever. If the interest rate will be 5% forever, calculate the price of a share.

A. $4.00

B. $40.00

C. $10.00

D. $80.00

E. $200.00

Problem 2 Two period dividend and final price

Suppose that a share is expected to pay $5 in one year from now, $6 in two years and after paying the second year dividend its price will be $120. If the interest rate is 4%, calculate the price of the share today.

A. $120.00

B. $121.30

C. $132.40

D. $117.03

E. $142.11

Problem 3 Delayed dividends

Suppose that a stock is not expected to pay any dividend for the next 5 years. Starting from year 6, the stock will pay a dividend of $6 each year. The rate at which we discount the payments is 3%.

A. $6.00

B. $150.00

C. $172.52

D. $194.25

E. None of the given alternatives

Reference no: EM131459174

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