An investor wants to purchase shares in a firm that has no g

An investor wants to purchase shares in a firm that has no growth opportunities but pays an annual dividend of $2.35. The market rate of return on similar securities is 17.5 percent. What is the maximum price the investor should pay for this stock?

Solution

Maximum Price(in case of No Dividend) = Dividend annual/ Rate of return

= $2.35/17.5%

= $13.42