Question
Assume that you are considering purchase of common stock issued by REC Corporation. Your research has shown that the dividends are paid regularly on a
Assume that you are considering purchase of common stock issued by REC Corporation. Your research has shown that the dividends are paid regularly on a semiannual schedule. The most recent (past, previous) semiannual dividend paid was D0 = $12 per share. In the future, dividends are expected to grow at an annual rate of 4%. You have determined that your required rate of return (discount rate) for this stock would be 6.5% per year.
A. Draw a time line illustrating the next four dividends for this common stock (i.e., D1, D2, D3, D4).
B. Calculate the value of this common stock.
C. Assume that the current market price of the common stock is $950.00 per share. Would you buy the stock? Why or why not?
D. Assume that you did buy the stock at the price quoted in part C. What will your expected return be at that price?
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