Answer using the Gordon Growth Modelunder the Efficient Market HypothesisJimmy decides to invest in MSFT commonstock. He expects that the stock will pay $1dividend per share next year and its pricewill be $20 per share by the end of yearwhen he is going to resell the stock. Aftersome careful analysis Jimmy finds that thecompany's business operation risk hasincreased over the past year due to therecent financial and economic crisis. As aresult, his required rate of return on thestock is 15%. What is the maximal price thatJimmy is willing to pay for the stock?a. $16.33b. $17.15c. $18.26d. $19.47e. $20.18

Price of stock will be the present value of dividend and present value of price after 2 years.

Answered: Answer using the Gordon Growth Model…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 3P

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Answer using the Gordon Growth Model under the Efficient Market Hypothesis Jimmy decides to invest in MSFT common stock. He expects that the stock will pay $1 dividend per share next year and its price will be $20 per share by the end of year when he is going to resell the stock. After