Given that dividends on a share are expected to remain indefinitely at $0.50 p.a.and that the required rate of return for the level of risk on such a share is 10% and the interest rate is 6%,the correct price for this share is:
A)$8.33.
B)$5.
C)$3.
D)none of the options given.

Question

Quizplus · Accepted Answer

The price of the share can be calculated using the constant growth formula:

Price = Dividend / (Required Rate of Return - Dividend Growth Rate)

Given that the dividend is expected to remain constant at $0.50 p.a., the dividend growth rate is 0. Therefore, using the values provided:

Price = $0.50 / (0.10 - 0) = $5

Thus, the correct price for this share is $5. Option B is the correct choice.

Given That Dividends on a Share Are Expected to Remain