### Computation of share price

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Computation of share price

1. Angelina's made two announcements concerning its common stock today. First, the company announced that its next annual dividend has been set at \$2.16 a share. Secondly, the company announced that all future dividends will increase by 4% annually. What is the maximum amount you should pay to purchase a share of Angelina's stock if your goal is to earn a 10% rate of return?

a. \$21.60

b. \$22.46

c. \$27.44

d. \$34.62

e. \$36.00

2. Lee Hong Imports paid a \$1.00 per share annual dividend last week. Dividends are expected to increase by 5% annually. What is one share of this stock worth to you today if the appropriate discount rate is 14%?

a. \$7.14

b. \$7.50

c. \$11.11

d. \$11.67

e. \$12.25

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