Stability Inc. has maintained a dividend payment of $4 per share for many years. The same dividend is expected to be paid in future years. If investors require a 12% rate of return on similar investments, determine the present value of the company's stock. a. $15.00 b. $30.00 c. $33.33 d. $35.00 e. $40.00

Question

Scarlett Holloway

Business

10 July, 10:30

Stability Inc. has maintained a dividend payment of $4 per share for many years. The same dividend is expected to be paid in future years. If investors require a 12% rate of return on similar investments, determine the present value of the company's stock. a. $15.00 b. $30.00 c. $33.33 d. $35.00 e. $40.00

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Answers (1)

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Farrell · Answer 1

The correct answer is $33.33 (approx.).

Explanation:

According to the scenario, the given data are as follows:

Annual dividend payment = $4

Required return rate = 12%

So, we can calculate the present value of company's stock by using following formula:

Present value = Annual Dividend / Required Return Rate

= $4 / 12%

= $4 / 0.12

= $33.33 (approx)

Hence, the present value of company's stock is $33.33.