Jia inc., has an odd dividend policy. the company has just paid a dividend of $4 per share and has announced that it will increase the dividend by $5 per share for each of the next four years, and then never pay another dividend. if you require a return of 12% on the company's stock, how much will you pay for a share today?

Jia Inc. current stock value is $ 4.48

Stock price = value to be paid at this time (now)

Whereas the dividend and selling price are $ 4 a year later so that the present value is needed

Stock price = ($ 4 + $ 0.48) / (1 + 12%) = $ 4.48

Thus, the maximum price you dare pay for the stock is $ 4.48

This means that if the stock is offered at a price above $ 4.48, then it is rejected and vice versa if the stock is offered at a price below $ 4.48, the stock is purchased.

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Class: Middle School

Subject: Mathematics

Keywords: stock, value, price

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