Suppose That a Firm Always Announces a Yearly Dividend at the End

question 53

Multiple Choice

Suppose that a firm always announces a yearly dividend at the end of the first quarter of the year, but then pays the dividend out as four equal quarterly payments. If the next such "annual" dividend has been announced as $5, it is exactly one quarter until the first quarterly dividend from that $5, the effective annual required rate of return on the company's stock is 14 percent, and all future "annual" dividends are expected to grow at 4 percent per year indefinitely, how much will this stock be worth?

• A) $17.10
• B) $50.00
• C) $52.55
• D) $57.00

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Definitions:

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