Question

What is the price of a stock today if it pays a Dividend TODAY of $2. Its growth rate is 5%, and its market return is 12%?

Answer 1

$30.00

Step-by-step explanation:

The price of the stock can be derived from the stock theoretical price formula given and explained below:

stock price=expected dividend/(market return-growth rate)

expected dividend=dividend paid today*(1+growth rate)

expected dividend=$2*(1+5%)

expected dividend=$2.10

market rate of return=12%

growth rate=5%

stock price=$2.10/(12%-5%)

stock price=$2.10/7%

stock price=$30.00