Question

Each of two stocks, C and D, are expected to pay a dividend of $3 in the upcoming year. The expected growth rate of dividends is 9% for both stocks. You require a rate of return of 10% on stock C and a return of 13% on stock D. The intrinsic value of stock C

Answer 1

Intrinsic value of Stock C is 300

Step-by-step explanation:

given data

expected pay dividend = $3

growth rate of dividends = 9%

stock C require a rate of return = 10%

stock D require a rate of return = 13%

solution

we get here intrinsic value by the DDM method

intrinsic value = Upcoming Dividend ÷ ( Required rate of return - Growth rate of stock ) .................1

intrinsic value =
`(3)/((0.10-0.09))`

intrinsic value =
`(3)/(0.01)`

intrinsic value = 300

so intrinsic value of Stock C is 300