Singing Fish Fine Foods has a current annual cash dividend policy of $2.502.50. The price of the stock is set to yield a return of 14 %14%. What is the price of this stock if the dividend will be paid a. for 1212 years

Answer / explanation:

Using the finite constant dividend model except with f (use infinite constant dividend model)

Price = Dividend * (1 - 1 / (1+r) n) / r

a. Price = $2.25 * (1 - 1 / (1.12) 10 / 0.12 = $2.25 * 5.6502 = $12.71

b. Price = $2.25 * (1 - 1 / (1.12) 15 / 0.12 = $2.25 * 6.8109 = $15.32

c. Price = $2.25 * (1 - 1 / (1.12) 40 / 0.12 = $2.25 * 8.2438 = $18.54

d. Price = $2.25 * (1 - 1 / (1.12) 60 / 0.12 = $2.25 * 8.3240 = $18.73

e. Price = $2.25 * (1 - 1 / (1.12) 100 / 0.12 = $2.25 * 8.3332 = $18.75

f. Price = $2.25 / 0.12 = $18.754.