Question

ABC's current dividend is $5 and has an annual growth rate of 6%. What would be the current price of a share of ABC stock if investors require 20% rate of return

Answer 1

$37.86

Step-by-step explanation:

Calculation for the current price of the share

Using this formula

Current price=D1/(Required return-Growth rate)

Let plug in the formula

Current price=(5*1.06)/(0.2-0.06)

Current price=5.3/0.14

Current price=$37.86

Therefore the current price of the share will be

$37.86