2. A friend has started a business selling software. The software is a great hit, and the firm quickly grows large enough to sell stock. Your friend's firm promises to pay a dividend of $5 per share every year for the next 50 years, at which point your friend intends to shut down the business. The firm's stock is currently selling for $75 per share. If you believe that the company really will pay dividends as stated and if you require a 10% rate of return to make this investment, should you buy the stock? Briefly explain.

2. A friend has started a business selling software. The software is a great hit, and the firm quickly grows large enough to sell stock. Your friend's firm promises to pay a dividend of $5 per share every year for the next 50 years, at which point your friend intends to shut down the business. The firm's stock is currently selling for $75 per share. If you believe that the company really will pay dividends as stated and if you require a 10% rate of return to make this investment, should you buy the stock? Briefly explain.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter31: Capital Markets

Section: Chapter Questions

Problem 2E

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Similar questions

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