Answer:
P0 = $21
Step-by-step explanation:
Using the constant growth model of dividend discount model, we can calculate the price of the stock today. The DDM values a stock based on the present value of the expected future dividends from the stock. The formula for price today under this model is,
P0 = D0 * (1+g) / (r - g)
Where,
Do is dividend today
g is the growth rate
r is the required rate of return or discount rate
P0 = 1 * (1+0.05) / (0.1 - 0.05)
P0 = $21