Knowee
Questions
Features
Study Tools

What is the value of a share that has been paying $2 dividends with no growth prospects, and a required rate of return of 10%?

Question

What is the value of a share that has been paying $2 dividends with no growth prospects, and a required rate of return of 10%?

🧐 Not the exact question you are looking for?Go ask a question

Solution

The value of a share can be calculated using the Dividend Discount Model (DDM) when dividends are not expected to grow. The DDM formula is:

P = D / r

where: P = price of the stock D = annual dividends per share r = required rate of return

Given in the question: D = $2 (annual dividends per share) r = 10% or 0.10 (required rate of return)

Substituting these values into the formula:

P = 2/0.10=2 / 0.10 = 20

So, the value of the share is $20.

This problem has been solved

Similar Questions

What is the value of a share that has just paid a dividend of $1, growing at 5% and a required rate of return of 10%?

A company has a constant growth of 4%, and a required rate of return of 18%. It has just paid a dividend of $2.50, what is the current share price valuatio

A man invested Rs. 4455 in Rs. 10 shares quoted at Rs. 8.25. If the rate of dividend be 6%, his annual income is:

Cross Corporation has Net Income of $4,095. Their retention ratio is 65%. How much will they payout in dividends this year?

Given the following information, calculate the dividend yield. Quarterly dividend: $0.50 per share Current share price: $20.00

1/2

Upgrade your grade with Knowee

Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.