What is the highest price broker should be willing to pay

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Reference no: EM132431150

Problem: A broker is considering buying a dividend - paying stock. The dividend will be paid at the end of the year. The analyst consensus is the stock will be worth $36 in one year. The company pays a 2.25 annual dividend (ex dividend date in not a consideration, the broker will receive the full $2.25), and the broker expects a 12% rate of return.

Required:

What is the highest price the broker should be willing to pay for the stock?

Answer is $34.15, what is the mathematical equation used to get the $34.15 answer? I cannot use excel, just a calculator.

Reference no: EM132431150

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