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a company paid its annual dividends of $5.39 per share last week. the company expects to grow its dividends at the rate of 5.0 percent per year for four years, after which the dividends are expected to remain constant at the level of $7.13 per share per year in perpetuity. if investors require a rate of return of 11.5 percent on this company's stock, what should be the price of one share of this stock today? $47 $54 $51 $59 $63 d0



Answer :

The price of one share of this stock today is $59

since we are provided with  annual dividends of $5.39 per share, the rate of growth of dividends is  5.0 percent per year   for four year,

the formula for calculating  the growth from one year to the next is

Dividend Growth= DividendYearₓ /(DividendYear₍ₓ₋₁) - 1

So, Dividend of first 1 year   is: $5.39(1 + 0.05) = $5.66

Dividend of second  year : $5.39(1 + 0.05)² = $5.94

Dividend of third   year :$5.39(1 + 0.05)³ = $6.24

dividend of fourth year: $5.39(1 + 0.05)^4 = $6.55

The value for  the fourth year will be= $7.13 / 0.115 = $62

therefore, the price of one share will,

= 5.66 / (1 + 0.115) + 5.94 / (1 + 0.115)² + 6.24/ (1 + 0.115)³ + 6.56 / (1 + 0.115)^4 + 62 / (1 + 0.115)^4

= 58.7

=  59.

To know more about dividends refer to the link https://brainly.com/question/28044310?referrer=searchResults.

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