Canada Inc.pays an annual dividend of $5.00 per share.If your required rate of return on an equity investment is 8%,and Canada Inc.'s expected growth rate is 4%,what should be Canada Inc.'s price?

Question

Quizplus · Accepted Answer

The price of a stock can be calculated using the dividend discount model as follows:

Price = Dividend / (Required rate of return - Growth rate)

Substituting the values given in the question, we get:

Price = $5 / (0.08 - 0.04) = $5 / 0.04 = $125

Therefore, the correct answer is (C) $130.