Ask Question
17 January, 15:56

You are valuing a common stock that just paid a dividend of $1.25 per share. You are expecting the stock to grow at the rate of 4% annually, and the stock to give you a return of 9%. What should be the price of the stock

+3
Answers (1)
  1. 17 January, 16:32
    0
    Price of stock - $26

    Explanation:

    Using te dividend valuation model, the price of a stock is the present value of the future cash flows expected from the stock discounted at the required rate of return.

    Where a stock is expected to pay dividend growing at a specific rate, the price of the stock can be dertermined as follows:

    Price = D (1+g) / (ke-g)

    D - dividend payable now,

    Ke-required rate of return,

    g - growth rate in dividend

    So we can work out the price as follows:

    Price = 1.25 (1+0.04) / (0.09-0.04)

    = $26

    Price = $26
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You are valuing a common stock that just paid a dividend of $1.25 per share. You are expecting the stock to grow at the rate of 4% ...” 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