Question

Trend-Line Inc. has been growing at a rate of 6% per year and is expected to continue to do so indefinitely. The next dividend is expected to be $6 per share. a. If the market expects a 10% rate of return on Trend-Line, at what price must it be selling

Answer 1

Step-by-step explanation:

A value stock is a security trading at a lower price than what the company's performance may otherwise indicate. Investors in value stocks attempt to capitalize on inefficiencies in the market, since the price of the underlying equity may not match the company's performance

DATA

Expected dividend price per stock = $6

Rate of return = 10%

Growth rate = 6%

Solution

Value of stock = dividend per stock / rate of return - growth rate

Value of stock = 6/(0.1-0.06)

Value of stock = $150