Question

A stock will pay no dividends for the next 5 years. Then it will pay a dividend of $9.51 growing at 1.75%. The discount rate is 9.14%. What should be the current stock price

Answer 1

To calculate the current stock price, we need to find the present value of the future dividend payments using the present discounted value (PDV) method. By applying the formula PV = D / (1 + r)^t, we can calculate the present value of each dividend and then sum them up to find the current stock price. In this case, the current stock price would be $18.22.

Step-by-step explanation:

To calculate the current stock price, we need to find the present value of the future dividend payments. The first step is to calculate the present value (PV) of each dividend using the formula PV = D / (1 + r)^t, where D is the dividend amount, r is the discount rate, and t is the time in periods.

Using the given information, we can calculate the present value of the dividend payment after 5 years: PV = $9.51 / (1 + 0.018)^5 = $8.71.

Finally, we can sum up the present values of all the dividends to find the current stock price: PV = $8.71 + $9.51 = $18.22.

Answer 2

PV= $84.56

Step-by-step explanation:

Giving the following information:

A stock will pay no dividends for the next 5 years. Then it will pay a dividend of $9.51 growing at 1.75%. The discount rate is 9.14%.

First, we need to calculate the value of the stock in five years:

PV5 = D1 / (i - g)

PV5= (9.51*1.0175) / (0.0914 - 0.0175)

PV5=$130.94

Now, the value today of the stock:

PV= FV / (1 + i)^n

PV= 130.94 / (1.0914^5)

PV= $84.56