Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $3.60 on its common stock in a single annual installment, and management plans on raising this dividend by 3.4 percent per year indefinitely. If the required return on this stock is 10.5 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $.90 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint. Find the equivalent annual end-of-year dividend for each year.) (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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
icon
Related questions
Question
Most corporations pay quarterly dividends on their common stock rather than annual
dividends. Barring any unusual circumstances during the year, the board raises, lowers,
or maintains the current dividend once a year and then pays this dividend out in equal
quarterly installments to its shareholders.
a. Suppose a company currently pays an annual dividend of $3.60 on its common stock
in a single annual installment, and management plans on raising this dividend by 3.4
percent per year indefinitely. If the required return on this stock is 10.5 percent, what is
the current share price? (Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly
installments; thus, the company has just paid a dividend of $.90 per share, as it has for
the previous three quarters. What is your value for the current share price now? (Hint.
Find the equivalent annual end-of-year dividend for each year.) (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Current share price
b. Current share price
Transcribed Image Text:Most corporations pay quarterly dividends on their common stock rather than annual dividends. Barring any unusual circumstances during the year, the board raises, lowers, or maintains the current dividend once a year and then pays this dividend out in equal quarterly installments to its shareholders. a. Suppose a company currently pays an annual dividend of $3.60 on its common stock in a single annual installment, and management plans on raising this dividend by 3.4 percent per year indefinitely. If the required return on this stock is 10.5 percent, what is the current share price? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Now suppose the company in (a) actually pays its annual dividend in equal quarterly installments; thus, the company has just paid a dividend of $.90 per share, as it has for the previous three quarters. What is your value for the current share price now? (Hint. Find the equivalent annual end-of-year dividend for each year.) (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Current share price b. Current share price
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 4 steps with 3 images

Blurred answer
Knowledge Booster
Classification of Stocks
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education