question archive ABC stock has just distributed a dividend of 2$
ABC stock has just distributed a dividend of 2$
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ABC stock has just distributed a dividend of 2$. Investors agree that the ABC shares will grow by 4% constantly. If the required rate of return is 17%, what is the value of this stock? Select one: a. 169 b.26$ c.22$ d. 13$ e. 19$
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| Calculate value of stock as shown below: | |||||
| Value of stock | Dividend in year 1/(Required return - Growth rate) | ||||
| Value of stock | $2*(1.04)/(0.17-0.04) | ||||
| Value of stock | 2.08/0.13 | ||||
| Value of stock | 16 | ||||
| Thus, value of stock is $16 |
