Q) XYZ Ltd last paid a dividend of $0.20 three years ago.  Today the company announced they will resume paying dividends.  The planned dividends are $0.65 in one year's time, $0.75 in two years' time, and thereafter dividends will increase by a constant rate of 4% p.a. indefinitely.  If the required rate of return for XYZ is 12%, what is a fair price for one share today?

 
a. $9.38

b. $8.37

c. $0.58

d. $8.95

e. $9.15

Answer rating: 100% (QA)

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