Question
Penelope wants to purchase 100 shares of stock in a growing company. Company 1 will pay dividends of $2.94 per share in the next period,
Penelope wants to purchase 100 shares of stock in a growing company. Company 1 will pay dividends of $2.94 per share in the next period, and the company is growing at an annual rate of 2%. Company 2 will pay dividends of $1.67 per share in the next period, and the company is growing at an annual rate of 3%. Company 3 will pay dividends of $1.82 per share in the next period, and the company is growing at an annual rate of 4%. Company 4 will pay dividends of $1.53 per share in the next period, and the company is growing at an annual rate of 6%. If each company expects to grow at the current rate indefinitely and all of the stocks have a discount rate of 8%, which stock should Penelope buy?
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