Suppose that a friend has started a business selling software. The software is a great hit, and the firm quickly grows large enough to be able to sell stock. Your friend's firm promises to pay a dividend of $6 per share every year for the next 48 years, at which point your friend intends to shut down the business. The firm's stock is currently selling for $57 per share. If you believe that the company really will pay dividends as stated and if you require a rate of return of 14% to make this investment, should you buy the stock?
No, according to the fundamental value equation, the price will be less than $57.
No, according to the fundamental value equation, the price will be equal to $57.
Yes, according to the fundamental value equation, the price will be less than $57.
Yes, according to the fundamental value equation, the price will be more than $57.