Kenzie Cos. is expected to pay a dividend of $2.15 per year indefinitely. The ap
ID: 2636210 • Letter: K
Question
Kenzie Cos. is expected to pay a dividend of $2.15 per year indefinitely. The appropriate rate of return on this stock is 15 percent per year, and the stock consistently goes ex-dividend 30 days before dividend payment date.
What will be the expected minimum price in light of the dividend payment logistics? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)
What will be the expected maximum price in light of the dividend payment logistics? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places.)
Kenzie Cos. is expected to pay a dividend of $2.15 per year indefinitely. The appropriate rate of return on this stock is 15 percent per year, and the stock consistently goes ex-dividend 30 days before dividend payment date.
Explanation / Answer
Price of stock = perpetual cash flow (2.15)/0.15 = 14.33333
The stock will be trading at minimum when it goes ex-dividend.
Since dividend in 2.15, the price of stock on ex-dividend date =14.333-2.15 =12.183
Expected minimum price =12.183
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