document.write( "<A HREF=/cgi-bin/jump-to-question.mpl?question=994687>Question 994687</A>: <I><SPAN STYLE=\"word-break: break-all;\"> Hi,<BR>\n" );
document.write( "Can you please help me solve the following problem question?\r<BR>\n" );
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document.write( "The dividend payments for a listed company are expected to grow at 5% per year. The current dividend is $3 per share. Suppose the investors’ required rate of return is 10% per annum. <BR>\n" );
document.write( "(a)Calculate the intrinsic price of the share.\r<BR>\n" );
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document.write( "(b)If the market price is $60 per share, would you buy shares in the company? Explain your answer. </SPAN>\n" );
document.write( "</I><HR><TABLE width=100%><TR><TD><B><A HREF=http://www.algebra.com/>Algebra.Com's</A> Answer #613733 by </B><A HREF=/tutors/aboutme.mpl?userid=rothauserc><B>rothauserc(4718)</B></A><img src=\"/images/stars/stars-13.gif\" alt=\"\" >&nbsp;<A HREF=/tutors/aboutme.mpl?userid=rothauserc><IMG SRC=http://www.algebra.com/images/aboutme-small.gif BORDER=0 alt=\"About Me\" VALIGN=MIDDLE></A>&nbsp;<IMG SRC=http://www.algebra.com/cgi-bin/show-face.mpl?user=rothauserc><BR>You can <A HREF=\"/cgi-bin/embed-solution.mpl?show=1&solution=613733\">put this solution on YOUR website!</A><BR><SPAN STYLE=\"word-break: break-all;\"> intrinsic share price = Expected dividends one year from the present / ( Required rate of return - Annual growth rate in dividends)<BR>\n" );
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document.write( "a) intrinsic share price = 3 / (.10 - .05) = $60<BR>\n" );
document.write( "b) no - the stock is at its intrinsic value of $60 which leaves no upside.  You want a stock to be higher than its intrinsic value.\r<BR>\n" );
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