question archive A Company's stock has just paid dividend of $6
A Company's stock has just paid dividend of $6
Subject:FinancePrice:2.86 Bought15
A Company's stock has just paid dividend of $6.50 and expected to pay dividend of $6.89 next year. The stock's required rate of return is 16%. Calculate the current market price of the stock if the dividend growth rate is constant.
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
D0 = 6.50 and D1 = 6.89, so we will get growth rate from these 2 dividends
PV = 6.50, FV= 6.89, n = 1
g = (FV/PV)^(1/n) - 1
g = (6.89/6.50)^(1/1) - 1 = 0.06 = 6%
NOW, required return = ke = 16% and
P0 = D1/(ke -g) = 6.89/(0.16-0.06) = 68.90
ANSWER : P0 = 68.90
