Ramble-On-Rose Florists Inc common shares are priced at $39.96 today and are expected to pay the next annual dividend of $1.85 in one year's time. Investors have historically required an 11% return for holding Ramble-On stock
Assume that the dividends grow at a constant rate in perpetuity, and calculate the growth rate implicit in today's stock price. Then, calculate the fair price for the stock after the $1.85 dividend in one year's time. Finally, calculate the capital gain rate. That is, the percentage change in the stock price between today and one year from now.
A) 4.63%, $30.39, 31.50%
B) 4.63%, $40.64, 5.38%
C) 6.37%, $39.96, 0.00%
D) 6.37%, $42.55, 6.37%
E) 6.37%, $42.55, 6.48%
E
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