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asked Nov 10, 2018 in BUS 1003H - Introduction to Financial Risk by NICOL LYNWOOD (130 points)

3. An investor purchased a holding of ordinary shares two months before payment of the next dividend was due. Dividends are paid annually and it is expected that the next dividend will be R120 per share. The investor anticipates that dividends will grow at a constant rate of 4% per annum in perpetuity. Calculate the price per share that the investor should pay to obtain a net return of 7% per annum effective.

1 Answer

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answered Nov 11, 2018 by Da Vinci (330 points)

i took the present value in advance from the first payment then discounted it by 2 months as there were 2 months left before the first payment.image