Korver Inc. just paid a dividend of $0.73. Its stock has a dividend growth rate of 5.62% and a required return of 10.21%. What is the current stock price if we anticipate dividends stopping in 20 years?
A) $8.62
B) $9.62
C) $10.62
D) $11.62
Answer: B
Explanation: B) The price is given by multiplying two components (see Equation 7.8 in the text).
The first component is = = = $16.798.
The second component is 1 - = 1 - = 1 - 0.95835220 = 0.572926.
Thus, price = $16.798 × 0.572926 = $9.624 or about $9.62.
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