Question

The Nearside Co. just paid a dividend of $1.65 per share on its stock. The dividends are expected to grow at a constant rate of 5 percent per year, indefinitely. Investors require a return of 12 percent on the stock. a. What is the current price

Answer 1

$24.7

Step-by-step explanation:

The first step is to calculate D1

1.65(1+5/100)

1.65(1+0.05)

1.65(1.05)

=>1.73

Therefore the current price can be calculated as follows

= D1/required rate-growth rate

= 1.73/0.12-0.05

= 1.73/0.07

= 24.7

Hence the current price is $24.7