Craftwell Inc. pays a $0.75 dividend every quarter and will maintain this policy forever. What price should you pay for one share of common stock if you want an annual return of 10.5% on your investment?

Quarterly dividend (D) = $0.75

Annual return (Ke) = 10.5% = 0.105

Quarterly return = 0.105/4 = 0.02625

Current market price = Quarterly dividend

Quarterly return

= $0.75

0.02625

= $28.57

Explanation:

Current market price is the ratio of quarterly dividend paid divided by quarterly return.