A stock just paid a dividend of D0 = $1

Finance Oct 24, 2020

A stock just paid a dividend of D0 = $1.50. The required rate of return is rs = 20.0%, and the constant growth rate is g = 4.0%. What is the current stock price?

a. $9.75b. $10.34c. $8.57d. $9.16e. $10.93

Expert Solution

Computation of Current Stock Price:

Current Stock Price = Dividend for Next Year/(Required Rate of Return - Growth Rate)

= $1.50*(1+4%)/(20%-4%)

= $1.56/16%

Current Stock Price = $9.75

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