# Stock A will pay a dividend of $4.00 one year from now. Subsequent annual dividends are expected

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## Question:

Stock A will pay a dividend of $4.00 one year from now. Subsequent annual dividends are expected to remain constant each year. Stock B will pay a dividend of $2.00 one year from now. Subsequent annual dividends are expected to increase by 3% each year. Assume that dividends on both stocks are paid in perpetuity. X is the combined price of Stock A and Stock B, based on the dividend discount model using an effective annual interest rate of 5%.

**Determine X.****Related Book For**

## Corporate Finance A Focused Approach

ISBN: 978-1305637108

6th edition

Authors: Michael C. Ehrhardt, Eugene F. Brigham