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A stock is expected to pay a dividen of $0.75 at the end of the year. The required rate of return is 10.5%, and the expected constant growth rate is 8.2%. What is the stock's current price

Respuesta :

Shahzaibfaraz

Answer:

P0 = $32.60869565 rounded off to $32.61

Explanation:

Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,

P0 = D1 / (r - g)

Where,

  • D1 is dividend expected for the next period
  • g is the growth rate
  • r is the required rate of return  

P0 = 0.75  /  (0.105 - 0.082)

P0 = $32.60869565 rounded off to $32.61

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