Question

Round Barn stock has a required return of 11.00% and is expected to pay a dividend of $2.35 next year. Investors expect a growth rate of 6.00% on the dividends for the foreseeable future. What is the current fair price for the stock?

Answer 1

$47

Step-by-step explanation:

Given that,

Required return = 11.00%

Expect a growth rate = 6.00%

Expected to pay a dividend next year = $2.35

Stock Price:

= Dividends (Div) ÷ (Expected Return (R) - Dividend Growth Rate (G))

= $2.35 ÷ (11% - 6%)

= $2.35 ÷ (5%)

= $47

Therefore, the current fair price for the stock is $47.