A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate, g, is 4.0%. According to the dividend discount model, the current stock price is closest to:A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate, g, is 4.0%. According to the dividend discount model, the current stock price is closest to:

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Business

Cristina

19 July, 23:43

A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate, g, is 4.0%. According to the dividend discount model, the current stock price is closest to:A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 10.1%, and the constant growth rate, g, is 4.0%. According to the dividend discount model, the current stock price is closest to:

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Answers (1)

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Joyce Wilcox · Answer 1

Current Stock Price Is $25.57

Explanation:

According to the scenario, computation of the given data are as follows:-

Dividend (D0) = $1.50

Required rate of return (R) = 10.1 = 0.101

Growth rate (G) = 4.0% = 0.04

D1 = D0 (1 + G)

= $1.50 * (1+0.04) = $1.50 * 1.04

= $1.56

Current Stock Price (P0) = D1 : (R-G)

= $1.56 : (0.101 - 0.04)

= $1.56 : 0.061

= $25.57

Current Stock Price Is $25.57