You invest in the stock of a company that has made it clear that it will be committed to pay a fixed annual dividend of? $2

Finance Oct 30, 2020

You invest in the stock of a company that has made it clear that it will be committed to pay a fixed annual dividend of? $2.00 forever. You expect to hold the stock? indefinitely, and you require a return on investment of? 5% on this stock. What price would you be willing to pay for this? stock?

?$25

?$100

?$40

?$50

Expert Solution

Computation of Price of Stock:

Price of Stock = Fixed Dividend/Required Rate of Return

= $2/5%

Price of Stock = $40

So, You would be willing to pay $40 for this stock.

So, the correct option is C "$40".

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