F Minus Notes is a publicly traded company.The last dividend paid was $4 per share.Dividends are paid annually,and they are expected to increase 5 percent per year for the next five years,then increase 10 percent per year thereafter.The discount rate associated with F Minus Notes common stock is 20 percent.What should be the current price of F Minus Notes stock?
A) $36.21
B) $33.13
C) $47.55
D) $50.72
E) $31.59

Question

Quizplus · Accepted Answer

The correct answer is A because the current price of F Minus Notes stock should be $36.21. This is calculated by using the dividend discount model, which takes into account the expected future dividends and the discount rate. The expected future dividends are calculated by multiplying the last dividend paid by the expected growth rate for the next five years and then by the expected growth rate for the following years. The discount rate is used to calculate the present value of these future dividends.

F Minus Notes Is a Publicly Traded Company