The Red Bud Co.just paid a dividend of $1.20 a share.The company announced today that it will continue to pay this constant dividend for the next three years after which time it will discontinue paying dividends permanently.What is one share of this stock worth today if the required rate of return is 8%?

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The correct answer is A because the present value of the dividends is $3.09. The present value of a constant dividend is calculated as follows:PV = D / rwhere:PV is the present valueD is the dividendr is the required rate of returnIn this case, the dividend is $1.20 and the required rate of return is 8%, so the present value is:PV = $1.20 / 0.08 = $3.09