A Stock Currently Does Not Pay an Annual Dividend

question 77

Multiple Choice

A stock currently does not pay an annual dividend. An investor expects this policy to remain in force. She believes, however, the stock of this company will sell for $110.00 per share four years from now. If she has an interest (discount) rate of 7% (0.07) , the dividend discount model predicts the current price of this stock should be:

• A) you cannot apply the model to this example since it requires a dividend be offered.
• B) $82.00
• C) $83.92
• D) $86.35