Your broker has recommended that you buy the stock of a new company. She told you that the company will not be paying any dividend for the next five years and in the fifth year the company is expected to pay its first semiannual dividend of $2.40 per share. The company is then expected to maintain this semiannual dividend indefinitely. 

If the broker recommends that you use an effective annual required rate of return of 25.44%, then what is the price you should pay for the stock?

Answer rating: 100% (QA)

We can use the dividend discount model to calculate the price you should pay for the stock In this c... View the full answer