An ordinary share that pays half-yearly dividends is due to make a dividend payment of £5.80 per share in exactly 4 months' time. Thereafter, future dividends are assumed to increase at a compound annual effective rate of 3.5%. Determine the with-dividend price that an investor should pay per share now in order to obtain a return of 7.5% per annum effective. You must show your full workings from the basic principles of valuing future payment streams.
An ordinary share that pays half-yearly dividends is due to make a dividend payment of £5.80 per share in exactly 4 months' time. Thereafter, future dividends are assumed to increase at a compound annual effective rate of 3.5%. Determine the with-dividend price that an investor should pay per share now in order to obtain a return of 7.5% per annum effective. You must show your full workings from the basic principles of valuing future payment streams.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Solve it using formulas, no tables
correct anwer is P= £301.47
Transcribed Image Text:An ordinary share that pays half-yearly dividends is due to make a dividend payment of £5.80
per share in exactly 4 months' time. Thereafter, future dividends are assumed to increase at
a compound annual effective rate of 3.5%. Determine the with-dividend price that an investor
should pay per share now in order to obtain a return of 7.5% per annum effective.
You must show your full workings from the basic principles of valuing future payment
streams.
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