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Bank Y maintains two types of stocks: Stock A and Stock B
Bank Y maintains two types of stocks: Stock A and Stock B. Each of the stocks paid RO3 for annual dividends. Stock B is traded at 8% which is 2% lower than the rate of return for Stock A. The dividend growth however for both stocks is 4%. Compute for the Stocks Values for Stocks A and B
Expert Solution
Stock A current price = Current dividend * (1 + growth rate) / (Required rate - growth rate)
Stock A current price = RO 3 * (1 + 4%) / (10% - 4%)
Stock A current price = RO 52
Stock B current price = Current dividend * (1 + growth rate) / (Required rate - growth rate)
Stock B current price = RO 3 * (1 + 4%) / (8% - 4%)
Stock B current price = RO 78
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