A share of stock has a dividend of D₀ = $5.The dividend is expected to grow at a 20 percent annual rate for the next 10 years,then at a 15 percent rate for 10 more years,and then at a long-run normal growth rate of 10 percent forever.If investors require a 10 percent return on this stock,what is its current price? A) $100.00 B) $82.35 C) $195.50 D) $212.62 E) The data given in the problem are internally inconsistent,i.e. ,the situation described is impossible in that no equilibrium price can be produced.

Question

Quizplus · Accepted Answer

The situation described is impossible because the required return is equal to the long-run growth rate, which means the stock price would theoretically be infinite, as the present value of future dividends would not converge.

A Share of Stock Has a Dividend of D0 =

A Share of Stock Has a Dividend of D₀ =