On december 31 2016mr gruber purchased 100 shares of, Ask an Expert

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On December 31, 2016,Mr. Gruber purchased 100 shares of company ABC for $127.00 per share. Starting in 2017, company ABC pays an annual dividend at the end of each year. The dividend on December 31, 2017 will be $2.54 per share, and will be increased by 2% in every subsequent year.

(a) Assuming that Mr. Gruber paid a fair price for his shares, what is the current effective annual interest rate?

(b) On December 31, 2018, the effective annual interest rate declines to 3%. What will the fair price per share for ABC be (after the dividend for 2018 has been paid)?[Hint:Observe that the amount of the dividend has increased]

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92693374

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