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Find the internal rate of return (IRR) of buying a $ 120 stock now that's expected to pay annual dividends forever, with the next $
Find the internal rate of return (IRR) of buying a $120 stock now that's expected to pay annual dividends forever, with the next $16 dividend to be paid in one year (t=1). The dividend is expected to grow forever at -4% per annum (note the negative sign). Therefore the second dividend (paid at t=2) is expected to be $15.36 (=(16*(1+-0.04)^1). The IRR of buying this stock now is:
Select one:
a.
-8% pa
b.
1.333334% pa
c.
8.6016% pa
d.
8.96% pa
e.
9.333333% pa
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