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You are offered to purchase a stock at a blue-chip company. Your best guess is that the stock will pay $12 in dividends each year
You are offered to purchase a stock at a blue-chip company. Your best guess is that the stock will pay $12 in dividends each year forever, starting next year. In addition, the relevant interest rate is 13% per year. You are offered an opportunity to buy the stock for $78.
What is the difference between the present value of owning the stock and what you pay for it? That is, what is the difference between PV (owning the stock that pays cash dividends) $99?
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