Asked by
Alexis Hoelzer
on Dec 09, 2024
Verified
Rosebud Florists pays a constant dividend of $1.50 a share. The company announced today that it will continue to do this for another 2 years after which time it will discontinue paying dividends permanently. What is one share of this stock worth today if the required rate of return is 7.5%?
A) $2.45
B) $2.55
C) $2.69
D) $2.79
E) $3.00
Constant Dividend
A dividend policy in which a firm aims to distribute a fixed amount or a stable dividend to shareholders per share, unaffected by fluctuations in its earnings or profits.
Required Rate of Return
The minimum expected rate of return on an investment, deemed necessary to compensate for its risk.
- Assess how alterations in dividend policies influence stock valuation.
- Understand the variance in return rates and how they affect stock prices.
Verified Answer
JG
Learning Objectives
- Assess how alterations in dividend policies influence stock valuation.
- Understand the variance in return rates and how they affect stock prices.