You want to purchase some shares of JJ Farms stock but need a rate of return of 17.5 percent to compensate for the perceived risk. What is the maximum you are willing to pay per share for this stock if the company pays a constant $2.43 annual dividend per share?
A) $11.11
B) $13.89
C) $9.26
D) $7.20
E) $8.47

Question

Quizplus · Accepted Answer

The maximum price you are willing to pay for the stock can be calculated using the dividend discount model for a stock with constant dividends, which is Dividend / Required Rate of Return. So, it's $2.43 / 0.175 = $13.89.

You Want to Purchase Some Shares of JJ Farms Stock