J&J Exporters paid a $1.80 per share annual dividend last month. The company is planning on paying $2.00, $2.50, $2.75, and $3.00 a share over the next four years, respectively. After that the dividend will be constant at $3.20 per share per year. What is the market price of this stock if the market rate of return is 13%?

A) $7.47
B) $15.96
C) $20.73
D) $22.57
E) $24.37

Question

Keirsten Floyd · Accepted Answer

Final Answer : D, Explanation :  The correct answer is D because the market price of the stock is $22.57. This is calculated by using the dividend discount model, which takes into account the present value of all future dividends. The formula for the dividend discount model is:P = D / (r - g)where:P is the market price of the stockD is the annual dividendr is the market rate of returng is the growth rate of the dividendIn this case, the annual dividend is $3.20, the market rate of return is 13%, and the growth rate of the dividend is 0%. Therefore, the market price of the stock is:P = $3.20 / (0.13 - 0) = $22.57

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