Ask Question
13 July, 02:11

What should be the stock value one year from today for a stock that currently sells for $35, has a required return of 15%, an expected dividend of $2.80, and a constant dividend growth rate of 7%

+5
Answers (1)
  1. 13 July, 04:27
    0
    The price of the stock one year from today is $37.45

    Explanation:

    The expected dividend that is the dividend for the next period of D1 is given as 2.8. To calculate the value of the stock one year from now, we need to use D2 in our calculations.

    The formula to find the price of a stock that has a constant dividend growth is,

    P0 = D0 * (1+g) / r - g

    This is to calculate the pricce of the stock today. To calculate the price of the stock one year from today, we need to use D2 in our calculations.

    Where, D2 = D1 * (1+g)

    Thus, the price of the stock one year from today or P1 is

    P1 = 2.8 * (1+0.07) / 0.15 - 0.07 = $37.45
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “What should be the stock value one year from today for a stock that currently sells for $35, has a required return of 15%, an expected ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers