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Homework answers / question archive / Starz Ltd's dividends are expected to grow at a rate of 5% p
Starz Ltd's dividends are expected to grow at a rate of 5% p.a. in the foreseeable future. Starz's current dividend is $1.00 per share and the required return on stocks like Starz is 10% p.a. Based on this information, Starz Ltd's share price today should be closest to:
A. $10.00.
B. $10.50.
C. $20.00.
D. $21.00.
Computation of the current share price:-
Current share price = D1 / (Required return - Growth rate)
= $1 * (1 + 5%) / (10% - 5%)
= $1.05 / 5%
= $21.00
Correct option is D). $21.00
