If a Stock's Dividend Is Expected to Grow at a Constant

Multiple Choice

If a stock's dividend is expected to grow at a constant rate of eight percent in the future and it has just paid a dividend of $1.25 a share, and you have an alternative investment of equal risk that will earn a 12 percent rate of return, what would you be willing to pay per share for this stock?

A) $31.25
B) $1.40
C) $1.25
D) $1.12