Gen Corp. is expected to pay a dividend of $3.60 per year indefinitely. The appr

Question

Gen Corp. is expected to pay a dividend of $3.60 per year indefinitely. The appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 40 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.)

Gen Corp. is expected to pay a dividend of $3.60 per year indefinitely. The appropriate rate of return on this stock is 12 percent per year, and the stock consistently goes ex-dividend 40 days before dividend payment date.

Explanation / Answer

Daily interest rate will be equal to-

=12%/365

=0.000328

So the minimum price of stock is-

(3.6/0.12)*(1/((1+0.000328)^40

=$29.60

Maximum price of the stock is

=$33.16

(3.6/0.12)*(1/((1+0.000328)^40

=$29.60

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