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.

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To determine the combined price X of Stock A and Stock B using the dividend discount model with an e... View the full answer