A friend has started a business. His product is a great success and the firm quickly grows large enough to be able to sell stock. The firm promises to pay a dividend of $8 per share every year for the next 53 years at which point the friend intends to shut down the business. The firm's stock is currently selling for $78 per share. If you believe that the company really will pay dividends as states and if you require a rate of return of 12% to make this investment, should you buy the stock? 1. No, according to the fundamental value equation, the price will be equal to $78 2. Yes, according to the fundamental value equation, the price will be more than $78 3. Yes, according to the fundamental value equation, the price will be less than $78 4. No, according to the fundamental value equation, the price will be less that $78 Please choose one of the options and explain
A friend has started a business. His product is a great success and the firm quickly grows large enough to be able to sell stock. The firm promises to pay a dividend of $8 per share every year for the next 53 years at which point the friend intends to shut down the business. The firm's stock is currently selling for $78 per share. If you believe that the company really will pay dividends as states and if you require a rate of return of 12% to make this investment, should you buy the stock?
1. No, according to the fundamental value equation, the price will be equal to $78
2. Yes, according to the fundamental value equation, the price will be more than $78
3. Yes, according to the fundamental value equation, the price will be less than $78
4. No, according to the fundamental value equation, the price will be less that $78
Please choose one of the options and explain
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