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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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