Question

Financial analysts forecast Safeco Corp (SAF) growth for the future to be 10 percent. Safeco’s recent divided was $1,200. What is the fair present value of Safeco stock if the required rate of return is 12 percent?

Answer 1

price of stock is $66000

Step-by-step explanation:

We have given dividend recent = $ 1200

Growth = 10% = 0.1

Required return = 12 % = 0.1

We have to calculate price of stock

Price of stock is given by

Price of stock
`=(D_1)/(r-g)`, here r is required rate and g is growth

So price of stock
`=(D_1)/(r-g)=(1200* (1+0.1))/(0.12-0.1)=$66`

So the price of stock is
`=(D_1)/(r-g)=(1200* (1+0.1))/(0.12-0.1)=$66000`