How much are you willing to pay for one share of Jumbo Trout stock if the company just paid a $0.70 annual dividend, the dividends increase by 1.6 percent annually, and you require a 10 percent rate of return?

Question

Quizplus · Accepted Answer

To calculate the price we use the dividend discount model: 
Price = Dividend / (required rate of return - dividend growth rate)
Plugging in the values, we get:
Price = 0.70 / (0.10 - 0.016) = $8.47
Therefore, the best choice is C.

How Much Are You Willing to Pay for One Share