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14 July, 06:32

the jackson - timberlake wardrobe co. just paid a dividend of $1.95 per share on its stock, the dividends are expected to grow at a constant rate of 4 percent per year indefinitely. if investors require a return of 10.5 percent on the stock, what is the current price

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  1. 14 July, 09:04
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    Current Price of the stock is $31.20

    Explanation:

    Price of the stock is the present value of the future dividends associated with the stock.

    As per given data

    Dividend = $1.95

    Growth rate = 4%

    Required rate of return = 10.5%

    Current Price of the stock can be determined using following formula

    Price of Stock = Dividend (1 + growth rate) / (Required rate of return - Growth rate)

    Price of Stock = $1.95 (1 + 4%) / (10.5% - 4%)

    Price of Stock = $2.028 / 6.5%

    Price of Stock = $31.20
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