Question

Thames inc.’s most recent dividend was $2.40 per share (i.e., d0 = $2.40). the dividend is expected to grow at a rate of 6 percent per year. the required rate of return is 10.2%. what is the price of the stock today?

Answer 1

The price of the stock today can be calculated using the dividend discount model (DDM) formula. Substituting the given values into the formula, the price of the stock today is approximately $60.00.

Step-by-step explanation:

To calculate the price of the stock today, we can use the dividend discount model (DDM) formula. The formula for the price of the stock today is:

P0 = d0 * (1 + g) / (r - g)

Where:

• P0 is the price of the stock today
• d0 is the most recent dividend ($2.40)
• g is the expected dividend growth rate (6% per year)
• r is the required rate of return (10.2%)

Substituting the values into the formula:

P0 = $2.40 * (1 + 0.06) / (0.102 - 0.06)

P0 = $2.40 * 1.06 / 0.042

P0 ≈ $60.00

Therefore, the price of the stock today is approximately $60.00.