Question

Jefferson's recently paid an annual dividend of $7 per share. The dividend is expected to decrease by 1% each year. How much should you pay for this stock today if your required return is 14% (in $ dollars)

Answer 1

the stock price that need to pay for the stock today is $46.2

Step-by-step explanation:

The computation of the stock price is shown below:

= Dividend × (1 - growth rate) ÷ (required return - growth rate)

= $7 × (1 - 0.01) ÷ (14% - (-1%))

= $6.93 ÷ 0.15

= $46.2

Hence, the stock price that need to pay for the stock today is $46.2

Basically we applied the above formula so that the correct stock price could come