Question

Assume that a stock is expected to pay dividends at the end of Year 1 and Year 2 of $1.25 and $1.56, respectively. Dividends are expected to grow at a 5% rate thereafter. Assuming that ke is 11%, the value of the stock is closest to:___.

A. $22.3.B. $23.42.C. $24.55.

Answer 1

C. $24.55

Step-by-step explanation:

Calculation to determine what the value of the stock is closest to:

Value of the stock =($1.25 / 1.11) + [1.56/ (0.11 -0.05)] / 1.11

Value of the stock =[1.126126+(1.56/0.06)]/1.11

Value of the stock = $24.55.

Therefore the value of the stock is closest to:$24.55