Question 15 The common stock of Answers Co. is currently trading at $60.8. The c

Question

Question 15

The common stock of Answers Co. is currently trading at $60.8. The company just paid a $1.6 dividend to its shareholders, and targets a 3.8 percent growth rate in its dividends year over year. What is the discount rate that the market is using to price this stock? Enter answer in percents, accurate to two decimal places.

Question 16

Dvorak Enterprises is expected to pay a stable dividend of $7 per share per year for the next 10 years. After that, investors anticipate that the dividends will grow at a constant rate of 2.1 percent per year indefinitely. If the required rate of return on this stock is 13 percent, what is the fair market value of a share of Dvorak?

Explanation / Answer

15)

Required return, re = D1÷Price+Growth rate

D1 is expected dividend

= $1.6×(1+3.8%)÷$60.8+3.8%

= 6.53%

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