Question

The price of a stock is: Question 7 options: the future value of all expected future dividends, discounted at the dividend growth rate. the present value of all expected future dividends, discounted at the dividend growth rate. the future value of all expected future dividends, discounted at the investors required return. the present value of all expected future dividends, discounted at the investors required return.

Answer 1

the present value of all expected future dividends, discounted at the investors required return.

Step-by-step explanation:

The price of the stock is the present value of all expected future dividends, discounted at the investors required return.

dividend models can be used in determining the value of a stock. some of them include:

1. The Gordon constant growth dividend model

2. The two-stage dividend growth model

3. The H-model

4. The three-stage dividend growth model

For example, if a firm would pay $5 as dividend in the coining year. Required return of an investor is 10% and growth rate is 5%. price is 100

according to the constant dividend growth model

price = d1 / (r - g)

d1 = next dividend to be paid

r = cost of equity

g = growth rate

5 / 0.1 - 0.05 = 100