Shares in Brothers Grimm, Inc., manufacturers of gingerbread houses, are expected to pay a dividend of $5
Question:
Shares in Brothers Grimm, Inc., manufacturers of gingerbread houses, are expected to pay a dividend of $5 in one year and to sell for $100 per share at that time. How much should you be willing to pay today per share of Grimm:
a. If the safe rate of interest is 5 percent and you believe that investing in Grimm carries no risk?
b. If the safe rate of interest is 10 percent and you believe that investing in Grimm carries no risk?
c. If the safe rate of interest is 5 percent, but your risk premium is 3 percent?
DividendA dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...
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a In one year the stock will be worth 105 5 in dividends plus 100 when the share is sold Thus th...View the full answer
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