A stock is expected to pay an annual dividend of 4 each, Financial Management

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A stock is expected to pay an annual dividend of 4 each

A stock is expected to pay an annual dividend of $4 each year into indefinite future. Rates of return on equally risky assets are 5%. Stock price=$100. Is there a bubble on this stock? How do you know? How big is bubble? To be consistent with no arbitrage possibilities, what price are people expecting the stock will have next year? Explain. What about 2 years?

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Financial Management: A stock is expected to pay an annual dividend of 4 each

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Financial Management: A stock is expected to pay an annual dividend of 4 each

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