Determining Price and rate of return of stock
1) Megan made two announcements concerning its common stock
today. First, the company announced that its next annual dividend has been set
at $2.16 a share. Secondly, the company announced that all future dividends
will increase by 4% annually. What is the maximum amount you should pay to
purchase a share of Megan’s stock if your goal is to earn a 10% rate of return?
2) The common Stock of Eddies Engines, Inc. Sells for $25.71
a share. The stock is expected to pay $1.80 per share next month when the
annual dividend is distributed. Eddie’s has established a pattern of incrasing
it dividends by 4% annually and expects to continue doing so. What is the
market rate of return on this stock?
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