Question

What is the market value of a stock that paid a dividend of $3.80 last year if the dividend is increasing at 10% annually and the required rate of return on the stock is 20%

Answer 1

The market value of the stock is $41.8

Step-by-step explanation:

Div 1 = Div 0 (1+r)

=3.80 (1+0.10)

=3.80(1.10)

=4.18

Market value of the stock= Dividend 1 / (r-g)

= 4.18 / 0.2 - 0.1

= 4.18 / 0.1

= $41.8

The market value of the stock is $41.8