A common stock pays an annual dividend per share of $2

Finance Feb 10, 2021

A common stock pays an annual dividend per share of $2.10. The market capitalization rate (required return on equity) is 11.5%. If the annual dividend is expected to remain at $2.10, what is the value of the stock? Round your answer to two decimal places.

Expert Solution

Computation of Value of Stock:

Value of Stock = Dividend for Next Period/(Required Rate of Return-Growth Rate)

Here,

Dividend for Next Period = $2.10

Required Rate of Return = 11.5%

Growth Rate = 0

Value of Stock = $2.10/(11.5%-0) = $18.26

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