BC Electrics Inc.pays a constant dividend of $2 every year.What will the share sell for three years from now if the required rate of return is 9.0%?

Question

Quizplus · Accepted Answer

The share price three years from now can be calculated using the dividend discount model for a perpetuity, since the dividend is constant. The formula is P = D / r, where P is the price, D is the dividend, and r is the required rate of return. Here, P = $2 / 0.09 = $22.22.