Keenan Co. pays a constant $9.75 dividend on its stock. The company will maintai
ID: 2645044 • Letter: K
Question
Keenan Co. pays a constant $9.75 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price?
a. 9.75
b. 73.85
c. 57.82
d. 63.33
e.107.25
the preferred stock of rail lines inc pays an annual dividend of $7.00 and sells for 59.70 a share. What is the rate of return on this security?
A. 10.38%
b. 11.73%
c. 12.56%
d. 12.72%
e. 12.84%
leave short explanation for best answer please!
Explanation / Answer
Keenan Co. pays a constant $9.75 dividend on its stock. The company will maintain this dividend for the next 11 years and will then cease paying dividends forever. If the required return on this stock is 10 percent, what is the current share price?
Current share price = 9.75/1.10 + 9.75/1.10^2 + 9.75/1.10^3 + 9.75/1.10^4 + 9.75/1.10^5 + 9.75/1.10^6 + 9.75/1.10^7 + 9.75/1.10^8 + 9.75/1.10^9 + 9.75/1.10^10 + 9.75/1.10^11
Current share price = $ 63.33
Answer
d. 63.33
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