Question

A share of common stock has just paid a dividend of $2.00. If the expected long-run growth rate for this stock is 15 percent, and if equity investors require a 19 percent rate of return, what is the fair price of the stock

Answer 1

$57.50

Step-by-step explanation:

fair value = dividend(1 + growth rate) / required rate of return - long run growth rate

$2(1.15) / 0.19 - 0.15 = $57.50