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If the next year’s dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be:
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If the next year’s dividend is forecast to be $5.00, the constant growth rate is 4%, and the discount rate is 16%, then the current stock price should be:

User Jenninha
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1 Answer

4 votes

Answer:

The answer is $41.67

Step-by-step explanation:

Po = D1/r - g. This formula is called Discount Dividend Model and it is one of the methods used in valuing company's stock.

Po is the present or current value of the stock

D1 is the next year dividend payment

r is the discount rate

g is the growth rate.

Po = $5.00 /0.16 - 0.04

= $5.00/0.12

=$41.67

Therefore, the current stock price is $41.67

User Suprita Shankar
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