Walker Laboratories, Inc. pays a $1.37 dividend every quarter and will maintain this policy forever. What price should you pay for one share of common stock if you want an annual return of 12.5% on your investment?

Question

Quizplus · Accepted Answer

The correct answer is A because the price of the stock can be calculated using the formula: Price = Dividend / (Required Return / Number of Payments per Year). In this case, the dividend is $1.37 per quarter, the required return is 12.5%, and the number of payments per year is 4 (since there are 4 quarters in a year). Plugging these values into the formula, we get: Price = $1.37 / (0.125 / 4) = $43.84.