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Relationship between the required return and the stock price

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Reference no: EM132678457

Directions: Work this problem twice, once assuming annual dividends and once assuming semiannual dividends. Keep the dividend the same ($2.64 per share) for both annual and semiannual payments. When the question says "if you want a return of" it is referring to the required rate of return.

Question: Cape Corp. will pay a dividend of $2.64 next year. The company has stated that it will maintain a constant growth rate of 4.5 percent a year forever.

If you want a return of 12 percent, how much will you pay for the stock? What if you want a return of 8 percent? What can be inferred about the relationship between the required return and the stock price?

Reference no: EM132678457

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