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Assume that you are in a perfect Modigliani-Miller world (no taxes, no bankruptcy costs, etc.). A firm has pledged to pay a $10 dividend per
Assume that you are in a perfect Modigliani-Miller world (no taxes, no bankruptcy costs, etc.). A firm has pledged to pay a $10 dividend per share every year, forever. Its cost of equity is 10 percent. You are considering whether to buy the share today at the current market price, receive the next dividend (which is due tomorrow), and sell the share in exactly a year from today. What do you expect your return on this strategy to (approximately) be?
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9 percent
11 percent
10 percent
20 percent
5 percent
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