Michelak's Maritime Industries has relatively stable earnings and pays an annual dividend of $2.50 per share. This dividend has remained constant over the past few years and is expected to remain constant for some time to come. If you want to earn 12% on an investment in the common stock of Michelak's, how much should you pay to purchase each share of stock?
A) $12.50
B) $18.88
C) $20.83
D) $25.00

Question

Quizplus · Accepted Answer

The price of a stock with constant dividends can be calculated using the formula: Price = Dividend / Required Rate of Return. Here, Price = $2.50 / 0.12 = $20.83.

Michelak's Maritime Industries Has Relatively Stable Earnings and Pays an Annual