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NEW QUESTION: 1
Given that a firm will exist for two years and issue dividends of $20 per share at the end of each year, and the required rate of return on shares is 10%, what is the value of its common stock according to the Dividend Discount Model?
A. $28.32
B. $35.93
C. $34.71
D. $40.00
E. Not enough information
Answer: C
Explanation:
Explanation/Reference:
Explanation:
The dividend discount model (Dividend Discount Model) assumes that the value of a share of common stock is the present value of all future dividends. In this question, the value of a share of common stock is equal to 20/(1 +0.10) + 20 /[(1 + 0.10)