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You want to purchase some shares of JJ Farms stock but need a rate of return of 17.5 percent to compensate for the perceived risk. What is the maximum you are willing to pay per share for this stock if the company pays a constant $2.43 annual dividend per share?

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jepessoa

Answer:

The answer is: $13.86

Explanation:

JJ Farms' stock is a type of perpetuity since it pays a constant $2.43 annual dividend per share. So to determine how much its stock is worth, we should use the perpetuity formula:

perpetuity = dividend / rate of return = $2.43 / 17.5% = $13.86

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